Ilargi: For our readers in Ireland, please don’t forget that Stoneleigh has been invited to do the Feasta Annual Lecture, tonight in Dublin:

2010 Feasta Annual LectureStoneleigh: Making Sense of the Financial Crisis in the Era of Peak OilDate and Time: 7 pm, August 3rd 2010 Venue: The Greenhouse, 17 St. Andrew Street, Dublin 2

Ilargi: As new US credit card laws are introduced that should limit the ways in and levels at which consumers are fleeced, card companies simply raise those fees that do not fall under such laws. What, nobody in Washington thought of that when the legislation was written? Right!

Well, it’s exactly this that a Consumer Financial Protection Agency has been designed for. Right?

Unfortunately, the -yet-to-be-formed- agency has been placed inside the Federal Reserve, of all places, and as if that weren’t sufficient to kill its potential to actually protect anyone, its obvious first head, Elizabeth Warren, faces strong resistance from all sides that have money, including the credit card industry. But wait a minute, who gave them a voice strong enough to matter in matters that directly involve regulating them?

Suffice it to say that consumers can kiss any substantial protection from banking industry rackets goodbye. You can of course argue that corporations are, and should be, free to do anything that's not illegal, but then you might want to ask yourself who actually writes the laws, and thereby defines what's legal and what's not in the first place.

What does it tell us when certain card fees are being newly regulated while banks are still free to raise other fees by just about any percentage they wish? In the end, the consumer will end up paying as much as before, if not more.

As long as the companies that need regulating (yes, sure, we can debate the merits of it all ad nauseam) have a large influence on the wordings and definitions of those very regulations, nothing is ever going to change in a way that actually benefits the consumer. Quite the contrary, in fact.

If I were Elizabeth Warren, I'd say thanks but no thanks to the job that the industry and its lackeys like Tim Geithner and senators Shelby and Corker don't want her to have in the first place. It would be a singularly frustrating way to spend her time.

And we can know this to be true if we look at the impending enormous rise in campaign contributions, brought to you courtesy of the Supreme Court and its inane decision to free corporations from laws restricting their -financial- influence on politics in general and elections in particular. Tom Hamburger writes in today's LA Times:

Driven by increasing anger at Democratic policies and by recent Supreme Court decisions unshackling corporate contributions, business and conservative groups are preparing a flood of campaign money to try to wrest control of Congress from the Democrats. The U.S. Chamber of Commerce, the biggest collection point for corporate contributions, has increased its spending for the congressional election in November from $35 million in 2008 to a projected $75 million this year. Officials say it may go even higher.

The chamber has been joined by new conservative fundraising organizations — such as American Crossroads, affiliated with Republican strategist Karl Rove — that have committed to raising tens of millions of dollars. One report circulating among Democratic leaders on Capitol Hill last week estimated that more than $300 million has been budgeted for the campaign by a group of 15 conservative tax-exempt organizations.

"A commitment of $300 million from just 15 organizations is a huge amount, putting them in record territory for groups on the right or left," said Sheila Krumholz, executive director of the nonpartisan Center for Responsive Politics, which tracks campaign contributions. "With control of Congress hanging in the balance, this kind of spending could have a major impact." The money's power is magnified because it will be concentrated in a relatively small number of swing states and districts. Of the 435 House and 37 Senate seats at issue in November, about 100 House seats and 18 in the Senate are considered competitive.[..]

Two recent Supreme Court decisions have encouraged corporate and union participation in political advertising campaigns. This year, the court decided in Citizens United vs. Federal Election Commission that corporations and unions could spend directly on elections, overturning a century of laws limiting such spending.

Chamber of Commerce officials say a more significant ruling was the 2007 decision in Federal Election Commission vs. Wisconsin Right to Life that lifted the ban on political issue advertising close to an election, allowing corporations and unions to spend unlimited sums on these ads at the last minute. The rulings have given all sides powerful tools to influence the outcome of elections.

Business leaders see high stakes in the midterm election. They were concerned about the sweeping healthcare overhaul passed this year and a far-reaching bill passed last month to establish greater federal monitoring and regulation of the financial system. Energy firms are particularly concerned about how Democratic-dominated Washington will regulate their businesses after the oil spill in the Gulf of Mexico.

Scott Talbott of the Financial Services Roundtable, a trade group for major financial firms, said banks and investment houses were participating in fundraising and lobbying at an unprecedented pace, partly because of concern over thousands of pages of new regulations that will be written to implement the laws, as well as who will be picked to head new government entities, such as the consumer protection agency for banking and securities.

President Obama's sagging approval ratings, which have dropped to 44% in some polls, have created an opportunity that could allow Republicans to gain control of the House and cut into the Democrats' majority in the Senate.

Ilargi: Basically, the only laws considered "passable" and the only people considered "confirmable" in Washington will be those that conform to the wishes, whims and desires of a few handful well-connected business executives. Realizing that, how can it come as any surprise at all that banks and other large corporations are announcing large profits as people who have no political clout sink away in ever-growing misery?

The system is broken, at least from the point of view of the vast majority of the people. The big boys and girls are fine, they can just grab another few $trillion from the public trough whenever they feel like doing so. The country's for sale to the highest bidder. And they're buying. And with your money, not theirs. They're buying politicians and they're buying legislation that's favorable to them.

It has very little to do with how we’ve come to define a democratic society. Then again, the first state we recognize as a democracy, ancient Athens, also was, upon closer observation, nothing but a bunch of rich guys divvying up the loot they obtained from having poor suckers break their backs working for them.

And here's where my first thought is to write: "Well, we all know how that ended". But to tell you the truth, I’m not so sure of that.

U.S. economic growth slowed sharply in the spring, stoking concerns about a weak job market, a drawn-out struggle for the unemployed and growing financial pressures on millions of American families. The nation's gross domestic product grew at an annualized rate of 2.4% in the second quarter, falling from an upwardly revised 3.7% expansion in the first three months of the year, the Commerce Department said Friday.

While many economists had expected growth to moderate, the reported decline was a jolting 35% below the previous quarter. Gross domestic product is the value of all goods and services produced in the economy. Underlying the government's report was an unusual economic crosscurrent: Corporate America is flourishing, investing heavily on new computers and other equipment. Meanwhile, many consumers are cutting their spending as they try to pare debts in the face of weak income gains, high unemployment and a shaky housing market.

"The consumer is still very tepid, but businesses are humming along," said Shawn DuBravac, chief economist for the Consumer Electronics Assn., referring generally to large companies. "But this disconnect," he added, "can only happen for a finite period of time." In other words, if consumers don't step up their spending — which accounts for 70% of the American economy — businesses won't be investing much more for very long. "It's difficult to have a strong sustained recovery without households coming to the party," said Paul Ashworth, senior U.S. economist at Capital Economics in Toronto.

Consumer spending rose a meager 1.6% in the second quarter, down from 1.9% in the first three months of the year, according to the Commerce Department. The nation's large trade deficit was another major factor in the latest GDP slowdown. "It's not very promising," said Mark Vitner, a senior economist at Wells Fargo in Charlotte, N.C. Like other analysts, he sees slower growth ahead as government stimulus spending fades and companies reduce the rate at which they had been rebuilding their inventories. Some technology companies already have reported that they have plenty of merchandise on hand and won't be restocking until consumers spend more freely, Vitner and others said.

In the wake of Friday's report, a number of economists downgraded their growth forecast for the second half of the year to as low as 1.5%, an anemic rate that would likely push the unemployment rate above June's 9.5% figure. Commerce officials also revised downward some prior growth figures for real GDP, which is the inflation-adjusted value of all goods and services produced in the U.S. The government Friday said real GDP grew 5% in the fourth quarter of 2009, down from a previously reported 5.6%.

Overall, the new data painted a picture of a deeper recession than previously believed. Government spending and inventory adjustments have powered the economic recovery that began last summer, and they juiced up the second quarter as well. But economists expect tighter public spending, particularly by budget-strapped state and local governments, to be a drag on the economy in the coming quarters. Many private economists projected that the unemployment rate would rise to 9.8% or higher by the end of the year.

That's not because they think job growth will turn negative. Rather, it's because the economy needs to create about 125,000 jobs a month just to keep pace with the natural increase in the working-age, and at the current rate of GDP growth, employers will be hard pressed to generate much more than that. July's jobless rate will be reported next Friday. "When somebody hires a worker or buys a new piece of equipment, they're taking a risk-reward calculation," Vitner said. "And in a slow-growth environment, the rewards aren't that high."

Lynn Reaser, president of the National Assn. for Business Economics, said that many companies, especially smaller ones, remained reluctant to add workers because of weak private demand, tight credit and uncertainties about the outlook and government policies. The association's latest survey shows hiring prospects improved but still sluggish. "There's just a lot of angst about the future strength of the economy, the deficits and what the tax structure will look like," said Reaser, an economist at Point Loma Nazarene University in San Diego. "The real question now relates to confidence. …Will businesses stay at the table, and will consumers at last play some part in this recovery?"

Reaser and others said the good news was that the European debt crisis, which rattled financial markets, had eased and that business investment remained very strong. Indeed, in the second quarter, the Commerce report showed, companies' investments rocketed 19.1% from the first quarter. That included a turnaround in outlays for buildings and a nearly 22% jump in spending for equipment and software.

But retail sales have softened and consumer attitudes have soured. On Friday, the University of Michigan reported that its index of consumer sentiment fell in July to its lowest level since last November. But Ashworth said the latest report also offered some hopeful signs. He noted that a surge in U.S. imports had a large negative effect on the overall GDP rate, which he sees as a volatile component of the GDP calculations. Moreover, he and others said, although personal spending remains weak, many consumers are socking away more money. While that may be harmful to the broader economy in the short run — the so-called paradox of thrift — it will help families improve their financial situations in the longer term.

Friday's report showed consumers saved an upwardly revised 5.5% of their after-tax income in the first three months of this year, and the personal savings rate rose to 6.2% in the second quarter, the highest since early 1993. That savings rate means more consumers will be in a stronger position to make purchases as the slow recovery continues, said Alan Levenson, chief economist at mutual fund giant T. Rowe Price in Baltimore. "That's close to where we thought consumers needed to be to take them along in consumption," he said.

There is no more disputing it: the economic recovery in the United States has indeed slowed. The nation’s economy has been growing for a year, with few new jobs to show for it. Now, with the government reporting a growth rate of just 2.4 percent in the second quarter and federal stimulus measures fading, the jobs outlook appears even more discouraging. "Given how weak the labor market is, how long we’ve been without real growth, the rest of this year is probably still going to feel like a recession," said Prajakta Bhide, a research analyst for the United States economy at Roubini Global Economics. "It’s still positive growth — rather than contraction — but it’s going to be very, very protracted."

A Commerce Department report on Friday showed that economic growth slipped sharply in the latest quarter from a much brisker pace earlier, an annual rate of 5 percent at the end of 2009 and 3.7 percent in the first quarter of 2010. Consumer spending, however, was weaker than initially indicated earlier in the recovery. Many economists are forecasting a further slowdown in the second half of the year, perhaps to an annual rate as low as 1.5 percent. That is largely because businesses have refilled the stockroom shelves that were whittled down during the financial crisis, and there will not be much need for additional orders.

Additionally, the fiscal stimulus measures that have propped up growth are expiring. Proposals for individual programs like another expansion of unemployment benefits have been beaten back each time they have come up in Congress. "We need 2.5 percent growth just to keep the unemployment rate where it is," said Christina Romer, chairwoman of the president’s Council of Economic Advisers. "If you want to get it down quickly, you need substantially stronger growth than that. That’s what I’ve been saying for the last several quarters, and that’s why I’ve been hoping that we’ll please pass the jobs measures just sitting on the floor of Congress."

The approaching midterm elections, however, may harden the political standoff after Congress returns from its August recess. As a result, pressure will probably increase on the Federal Reserve to use its available tools to prevent a double-dip recession. Recent reports from Fed policy makers suggest the central bank has become increasingly worried about where the economy is headed. American businesses, if not American households, seem to be hanging on.

The crucial driver of growth in the second quarter was business investment in such things as office buildings and equipment and software. Such activity rocketed up at an annual rate of 17 percent in the second quarter, compared with a 7.8 percent increase in the first. The equipment and software category alone grew at an annual rate of 21.9 percent, the fastest pace in 12 years. "We’re seeing a sort of handover from consumer spending to capital spending," said John Ryding, chief economist at RDQ Economics. "The consumer also looks to have saved more than we thought before, which means they’re perhaps further on the road to financial adjustment than we thought they were previously."

Consumer spending, which is usually a leading indicator of a recovery and which accounts for most economic activity in the United States, has been leveling off. It grew at an annual rate of 1.6 percent in the second quarter after a 1.9 percent rate in the previous quarter. Personal savings was estimated at 6.2 percent of disposable income last quarter, significantly higher than the 4 percent that had been estimated earlier.

A separate report released on Friday by the University of Michigan and Thomson Reuters showed that consumer confidence tumbled in July. The fact that businesses seem to be investing more in equipment than in hiring may be a reason consumers have been reluctant, or perhaps unable, to pick up the pace of their spending. "There are limits on the degree to which you can substitute capital for labor," Mr. Ryding said. "But you can understand that businesses don’t have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people. If you can get away with upgrading capital spending and deferring hiring for a while, that makes economic sense, especially in this uncertain policy environment."

The government painted a portrait of a deeper recession when it also released revised data for the last three years on Friday. Over all, 2009 and 2008 were slightly worse than previously reported, but the first quarter of 2010 was better. As the global economy recovers, America’s trade has picked up. But imports once again grew faster than exports. Imports grew at an annual rate of 28.8 percent, the biggest jump in a quarter-century, compared with a 10.3 percent gain in exports.

Government spending shot up more than many anticipated, at an annual growth rate of 4.4 percent after a decline of 1.6 percent in the first quarter. Public spending was broad-based, with even state and local expenditures increasing for the first time in a year. Local governments may have taken advantage of warmer weather to use more of their federal stimulus money. "You could see this in the monthly number for state and local construction spending," said Nigel Gault, chief United States economist at IHS Global Insight. "Construction slows down during winter months, so stimulus may not have been doing as much earlier this year."

Other policy initiatives, like the homebuyer’s tax credit, also appear to have lifted demand. Consumers rushing to take advantage of the credit as it was nearing its expiration pushed up spending on housing and related property investments by an annual pace of 27.9 percent in the second quarter. Such spending had fallen 12.3 percent the previous period. "This will almost certainly reverse hard next quarter," Jay Feldman, director of economics at Credit Suisse Securities, wrote in a note to clients.

If Ben Bernanke, Federal Reserve chairman, expected the release of second- quarter growth data to clear up the "unusually uncertain" outlook for the US economy, then he will have been sorely disappointed. On the surface, the numbers were easy to interpret. Growth over the previous quarter at an annualised rate fell from 3.7 per cent in the first three months of this year to 2.4 per cent in the second. That fits with many other signs that the recovery is slowing down.

The details, however, hide a series of economic mysteries – about how fast the economy can grow, how weak it actually is, and what US consumers have been up to for the past few years – that policymakers will have to solve. The most interesting numbers in the release were not about the second quarter at all – they were revisions for 2007, 2008 and 2009. These showed that the recession was even deeper than previously thought. Output in 2009 was 1 per cent below the previous estimate. "The recession was unusually long and unusually severe and has proved unusually resistant to unusual amounts of stimulus," says Neil Soss, chief economist at Credit Suisse in New York.

There are two ways to read the revisions. One is that the economy is even further from using its full capacity than previously believed – an argument for more easing by the Fed. The other is that the economy’s capacity to grow is less than thought. Paul Ashworth, senior US economist at Capital Economics, says he leans towards the latter explanation because inflation numbers remain the same. Less growth for the same inflation suggests a lower potential to grow.

Another question is quite how weak the economy actually is. Purchases by US consumers and businesses grew a lot faster in the second quarter than in the first – up by 4.1 per cent from 1.3 per cent – it is just that many of them came from abroad. Companies also added less to their inventories, which lowers growth but not final demand in the economy. Some of the imports seem to have been businesses buying IT kit, an idea borne out by strong results from the technology sector and logistics companies such as FedEx. Technology investment should be good for future growth.

On the other hand, the 0.7 percentage points that real estate investment added to second-quarter growth look odd because most surveys say residential and commercial markets are still weak. The extent of the past revisions is a reminder to be cautious about all second-quarter numbers: they may yet be heavily revised. A final area of mystery is the consumer. Consumption in 2007, 2008 and 2009 was revised down but consumer incomes were revised up as statisticians found more dividend income. The result is that savings rates are much higher than previously thought: 5.9 per cent in 2009 instead of 4.2 per cent.

Consumers who are saving more may be better able to increase their spending in future and boost the recovery. It also suggests the economy has moved further towards relying on investment rather than consumption as a source of growth, although net exports are still lagging behind. One challenge of economic mysteries is that the clues keep changing in this way. The people who have to find the solution are Mr Bernanke and his colleagues at the Fed. Mr Bernanke will deliver a speech today that might give some hint to his thinking but much depends on non-farm payroll figures, which are due on Friday before a federal open market committee rate-setting meeting next week.

If private job creation is well below 100,000 for the third month in a row, it will be strong evidence that growth continues to stagnate. Some members of the FOMC have trimmed their own growth forecasts since the last meeting in June and the committee is likely to reflect the weaker data by changing its statement on the economy. There is also likely to be some formal discussion of the tools available if the Fed does decide to ease further. But drastic changes to policy, such as restarting asset purchases, are still unlikely unless the economy suffers another shock.

Some of the world's leading investors are becoming more worried about deflation and are re-shaping their portfolios to prepare for a possible period of falling prices. Bond-fund heavyweight Bill Gross, investment manager Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier are among the best-known investors who are bracing for a possible bout of deflation, a development that could cripple global economies and world stock markets.

The investors cite weak economic figures and a mounting consensus that global policy makers are reluctant, or unable, to take further steps to boost economic growth as reasons for their market positions. "Deflation isn't just a topic of intellectual curiosity, it's happening," says Mr. Gross, who runs the $239 billion mutual fund Pimco Total Return Fund, citing an annualized 0.1% decline over the past two years in the U.S. consumer-price index. "It's an uncertain world that's tipping toward deflation."

These investors are walking a fine line. Deflation scares immediately following the 2008 financial crisis didn't materialize, in large part because central banks intervened. Indeed, many of these star investors don't see extended deflation as a sure bet and predict that, as deflation becomes more likely, the Federal Reserve and other government officials will take radical steps to arrest the decline, such as buying bonds or introducing spending programs.

Still, preliminary signs of deflation are spurring Mr. Gross and the others to take on larger positions of interest-bearing investments such as bonds or dividend-paying stocks. They also have begun buying protection against possible stock-market losses. In a period of falling prices, companies can find it challenging to generate profits, putting pressure on stocks. Recent data are responsible for the worries.

The consumer-price index rose 1.1% in June compared with a year earlier. Friday's report on second-quarter gross domestic product showed the underlying inflation rate—which excludes volatile moves in food and energy prices and is closely watched by the Fed—increased 1.1%, the lowest reading since the first quarter of 2009. St. Louis Fed President James Bullard last week warned of a Japan-like period of deflation and slow growth.

Such mainstream talk about deflation is a sharp reversal from just two months ago, when inflation, not deflation, was the focus of traders. Investors such as John Paulson, renowned for his bets against the U.S. housing market, piled on gold positions while others dumped U.S. Treasurys. Mr. Gross has been aggressively buying U.S. government debt in recent weeks. Treasurys now account for about 51% of the portfolio of his Pimco Total Return fund, up from less than 33% at the end of March. It is as high an allocation to government securities for the fund as at any time in the past six years, according to Morningstar Inc. The fund has risen 7% this year.

Mr. Tepper, who runs the $15 billion hedge fund Appaloosa Management LP, has about 70% of his portfolio in bonds rated "BB" and "BBB"—the lowest end of the investment-grade spectrum and the upper tier of "junk"—from banks and others. That is up from 63% earlier in the year, investors say, helping him score gains of about 12% in 2010. He is sticking with credits that promise generous yields but still are relatively safe bets in any period of weak growth and potential deflation. "I'm concerned that slower growth may lead to a much tougher environment for pricing," Mr. Tepper says. "That can mean deflation in some industries, even if we get inflation in the overall economy."

Others, including the $42 billion Fortress Investment Group LLC, the $1.2 billion New York hedge fund Argonaut Capital Management and the $107 billion Boston investment firm GMO LLC, founded by Mr. Grantham, are warning clients about possible deflation. Deflation is seen as pernicious and hard to address once it sets in. Falling prices can make businesses and consumers reluctant to spend and invest, hurting profits and crippling the economy. It can be caused by a drop in the money supply and credit, declining spending and high unemployment, all of which can encourage companies to cut prices.

"We fear that core inflation readings in the United States could dip into outright deflationary territory in coming months," Argonaut Capital, whose returns are flat for the year, recently told investors. "This should be a positive for longer-dated fixed income." Mr. Fournier's $4 billion hedge fund Pennant Capital says "political winds shifted" when European nations recently told U.S. Treasury Secretary Timothy Geithner at the Group of 20 summit they will focus on balancing their budgets rather than stimulating economic growth. The rising clout of the Tea Party movement in the U.S. also has colored his view that elected officials won't have the ability to spend.

Mr. Fournier and some others say Tea Party adherents are appropriately worried about hefty government debts, but that without near-term spending and programs by elected officials, the economy could sink further. "The U.S. economy has to grow north of 2% to avoid deflation, and we're right around there," he says.

Mr. Gross was much more skeptical of Treasurys as recently as about three months ago. Mr. Gross says he is paying particular attention to deterioration in an index produced by the Economic Cycle Research Institute that attempts to predict future economic health. In addition, he says, a drop in money supply and fiscal tightening in much of the world are reasons for Pimco's investment shift. "We said, 'Hey, two-thirds of the world is moving to the zero line,'" of inflation, he says.

Pimco's team predicts "core" U.S. inflation, which excludes volatile energy and food prices, might drop a tad below 0% in the next few years; it could rise as high as 2% if economic growth improves. There still is a big problem for investors preparing for deflation: It is hard to find attractive investments when it arises. Some say utilities and companies with stable cash flows are the best bets, along with government bonds. But many shares and riskier bonds depending on rising corporate profits could be losers in such a scenario. Mr. Gross urges investors to focus on cash flows that are "relatively certain," such as dividends and interest from stocks and bonds of quality companies.

Mr. Fournier is betting further economic difficulties spur politicians and the Fed to take aggressive actions to stave off deflation. But stocks may have to fall sharply before that happens; he is buying protection such as exchange traded funds that rise when the market falls. Argonaut founder David Gerstenhaber also is avoiding stocks, though he says the dollar could do well if deflation arises, as all kinds of borrowers slash debt. In a period of deflation, each dollar of debt becomes more onerous as wages and prices fall, as opposed to in an inflationary period, when the value of debt drops.

Deflation is no sure thing, the investors say. Mr. Tepper says that if the U.S. economy expands 1% or so over in the next few years, deflation and troubles for stocks will arise. Growth of 3% would boost profits and stocks, he says. At Pimco, Mohamed El-Erian, the firm's chief executive and co-chief investment officer, says "the risk of a deflationary spiral has increased, but it is still not the most likely scenario." He says investors need to prepare for an unusually wide range of possibilities. The risk of so-called fat tails—or extreme outcomes—including a bout of prolonged deflation, are "not insignificant."

In the WSJ, Gregory Zuckerman has a report on all the big name investors who are now positioned to bet on deflation. Among the big names: Bill Gross, David Tepper, and GMO LLC.

But this isn't that surprising, given that the "Big D" has been all the rage of late, reaching a fever pitch last week when St. Louis Fed president James Bullard dropped his big paper on the subject.

What's interesting is that it wasn't all that long ago when all the cool kids were betting on inflation. Paolo Pellegrini -- John Paulson's old hand -- has been warning about inflation for awhile, and at least not long ago was short Treasuries, arguing that the massive funding needs of the US would necessitate more printing and higher interest rates. Whoops.

Now granted, good investors are switching their views all the time, and we don't know where they stand today. But the bottom line is that EVERYONE (not quite, but almost) thought betting against the dollar and US debt was a no-brainer, largely due to inflation/debt concerns, but that seems to have gone away almost entirely.

A subtle but significant shift appears to be occurring within the Federal Reserve over the course of monetary policy as the economic recovery is weakening. On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming "enmeshed in a Japanese-style deflationary outcome within the next several years."

The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, came days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so. On Friday, the government will release its estimate of gross domestic product for the second quarter of this year. At the Fed, Mr. Bullard had been associated with the camp that sees inflation, the central bank’s traditional enemy, as a greater threat than deflation brought on by anemic growth. Until now he had not been an advocate for large-scale asset purchases to reinvigorate the economy.

But with inflation very low, about half of the Fed’s implicit target of 2 percent, and with the European debt crisis having roiled the markets, even self-described inflation hawks like Mr. Bullard have gotten worried about the economy’s trajectory. With his remarks on Thursday, Mr. Bullard appeared to join other Fed officials already seen as sympathetic to the view that damage from long-term unemployment and the threat of deflation are the greatest challenges facing the economy. They include the Fed bank presidents Eric S. Rosengren of Boston and William C. Dudley of New York.

Those so-called inflation doves are likely to be joined soon by three new members of the Fed’s board of governors. President Obama has nominated Peter A. Diamond, an economist, and Sarah Bloom Raskin, a bank regulator, to the Fed’s board, along with Janet L. Yellen, president of the San Francisco Fed, to be vice chairwoman of the board. All have also expressed serious concerns about unemployment. Whether the Fed should take additional measures to support the economy is certain to be the top item when the Federal Open Market Committee, which shapes monetary policy, meets on Aug. 10. The committee includes the Fed’s board of governors, along with the president of the New York Fed and a rotating group of the other bank presidents.

Of 10 current members on the committee, two are openly concerned about inflationary risks; three, now including Mr. Bullard, are somewhat worried about deflation; and five centrists, including Mr. Bernanke, have not expressed a firm leaning either way. Mr. Bullard, in an conference call with reporters on Thursday, said that if any new "negative shocks" roiled the economy, the Fed should alter its position that interest rates would remain exceptionally low for "an extended period," or resume buying long-term Treasury securities to stimulate the economy. He emphasized that he was not calling on the committee to act right now, but wanted to "try to get a debate going."

And he expressed hope his fears would not come to pass, saying, "The most likely possibility is that the recovery will continue into the fall, inflation will start to move up and this issue will all go away."Laurence H. Meyer, a former Fed governor, said of Mr. Bullard’s new position: "This is very significant. He has been one of the most hawkish members, but he is now calling for the Fed to ease aggressively." Until now, Mr. Rosengren had been perhaps the Fed official most outspoken on the prospect of the economy getting stuck in a deflationary cycle.

"While I am not anticipating we will be in a deflationary period, it’s a risk that I do take seriously, and we should continue to monitor what’s happening with prices," Mr. Rosengren said in an interview last week. "A heightened risk of deflation is something that we should react to." That view is not universally held, however. Thomas M. Hoenig, president of the Kansas City Fed and an inflation hawk, said in an interview Thursday that the comparisons to Japan were overstated. He likened the debate to the situation in mid-2003, when a sluggish recovery from the 2001 recession prompted predictions of deflation that did not come to pass. "I don’t think we should find ourselves picking up every piece of short-term data and jumping to conclusions," he said.

Two others associated with the hawkish camp, which is focused on continued vigilance on inflation, offered similar perspectives in separate interviews. "I think the fear of deflation in and of itself is probably overblown," Charles I. Plosser, president of the Philadelphia Fed, said last week. He said that inflation expectations were "well anchored" and noted that $1 trillion in bank reserves was sitting at the Fed. "It’s hard to imagine with that much money sitting around, you would have a prolonged period of deflation," he said. And Richard W. Fisher, president of the Dallas Fed, said this week, "Reasonable people can argue that there’s a risk of deflation, but we haven’t seen it in the numbers yet."

Starting in 2007, the Fed lowered the benchmark short-term interest rate to zero and pumped some $2 trillion into the economy with an array of emergency loans and purchases of government debts and mortgage bonds. Those purchases were phased out in March, but there is now talk of resuming them. Doing so would further enlarge the central bank’s balance sheet, which has more than doubled, to $2.3 trillion. The Fed has been saying since May 2008 that it would keep interest rates "exceptionally low" for an "extended period." The markets have over time interpreted that phrase to mean that the Fed will probably keep the federal funds rate at its current level — a target of zero to 0.25 percent — through 2011.

But in his article, Mr. Bullard wrote, "Promising to remain at zero for a long time is a double-edged sword." Mr. Bullard said that inflation expectations had fallen from about 2 percent earlier this year to about 1.4 percent now, as judged by one measure, five-year Treasury inflation-protected securities. The outcome could be an "unintended steady state" like Japan’s slow-growth economy. "The U.S. is closer to a Japan-style outcome today than at any time in recent history," he wrote.

In a scholarly paper that was released [last week] James Bullard, President of the Federal Reserve Bank of St. Louis, stated, "The U.S. is closer to a Japanese-style outcome than at any time in recent history". As everyone knows, the Japanese economy has undergone a period of extremely slow growth with periodic recessions combined with price deflation over the past 20 years. Its stock market is still about 70% below the 1989 peak while property values are still depressed despite ultra-low interest rates and massive government spending.

While the paper concluded that this was not the most likely outcome, the release caused an immediate intra-day drop in the stock market that was partially reversed later in the session. Bullard’s prescription for avoiding this highly undesirable outcome was to advocate more reliance on additional quantitative easing (QE) rather than extremely low interest rates.

Bullard’s paper is the latest of a recent realization that deflation is a major threat and that the U.S. could follow Japan into its own lost decade (or two?). However, Comstock pointed this out over a year ago in a comment dated May 21, 2009, titled "Deleveraging—-U.S. vs. Japan". In that comment we wrote, referring to Japan, "Now nearly 20 years later, both the stock and commercial real estate markets remain more than 70% off their peaks, while residential land prices are more than 40% below their peak. Although the optimistic view is that the various stimulative plans by the new administration together with the massive easing by the Fed will help the U.S. avoid the same deleveraging result as Japan, it is exceedingly difficult to see how that will happen".

Although Bullard was expressing his personal opinion rather than that of the FOMC, we think it is important. He is a voting member of the FOMC and, more importantly, he is regarded as one its more hawkish members. For a hawkish Fed governor to come out for additional substantial QE could be a turning point in how the investing public looks at the longer-term outlook for the economy.

In our view the case for deflation is a strong one as most of the classic symptoms are present in the U.S. today. Record historic debt is already in the process of deleveraging, and there is still a long way to go. Consumer demand is restrained. There is an excess of labor supply with five people available for every open job. Capacity utilization rates are historically low. Household net worth is far below peak levels. Credit is available only to the most highly qualified borrowers. Money supply has been flat or decreasing despite massive stimulus. All of this is a classic recipe for deflation.

We also believe that there is little the Fed can do to avoid the outcome. Japan kept both short and long-term interest rate exceedingly low for many years and ran massive budget deficits with little to show for it, although they did prevent a complete collapse of their economic and financial system. While there is a difference between the U.S. and Japan, two major differences were in favor of Japan rather than the U.S. During most of Japan’s two-decade malaise the global economy was quite strong and Japan was able to support its economy with a substantial amount of exports. Furthermore, Japan started with a 12% household savings rate and was able to run it down, thereby providing some support for consumer spending.

So far the stock market has been resistant to a downturn. The consensus believes that the economic recovery is on track, the Fed can avoid deflation, the U.S. is not like Japan, the European crisis is over, the market is cheap and China has curbed its real estate bubble. For reasons pointed out in past comments, we disagree on all counts and that investors are making the same mistake they made in early 2000 and late 2007 when they overlooked key negative factors that should have been recognized at the time.

Technically speaking, Mark Freeman should count himself among the luckiest people on the planet. The 52-year-old lives with his family on a tree-lined street in his own home in the heart of the wealthiest country in the world. When he is hungry, he eats. When it gets hot, he turns on the air-conditioning. When he wants to look something up, he surfs the internet. One of the songs he likes to sing when he hosts a weekly karaoke evening is Johnny Cash’s "Man in Black".

Yet somehow things don’t feel so good any more. Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears. Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee. And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.

What is most troubling about the Freemans is how typical they are. Neither Mark nor Connie – his indefatigable wife, who is as chubby as he is gaunt – suffer any chronic medical conditions. Both have jobs at the local Methodist Hospital, he as a warehouse receiver and distributor, she as an anaesthesia supply technician. At $70,000 a year, their joint gross income is more than a third higher than the median US household.

Once upon a time this was called the American Dream. Nowadays it might be called America’s Fitful Reverie. Indeed, Mark spends large monthly sums renting a machine to treat his sleep apnea, which gives him insomnia. "If we lost our jobs, we would have about three weeks of savings to draw on before we hit the bone," says Mark, who is sitting on his patio keeping an eye on the street and swigging from a bottle of Miller Lite. "We work day and night and try to save for our retirement. But we are never more than a pay check or two from the streets."

Mention middle-class America and most foreigners envision something timeless and manicured, from The Brady Bunch, say, or Desperate Housewives in which teenagers drive to school in sports cars and the girls are always cheerleading. This might approximate how some in the top 10 per cent live. The rest live like the Freemans. Or worse.

It only takes about 30 seconds to tour Mark’s 700sq ft home in north-west Minneapolis. Cluttered with chintzy memorabilia, it was bought with a $50,000 mortgage in 1989. It is now worth $73,000. "At one stage we had it valued at $105,000 – and we thought we had entered nirvana," says Mark. "People from the banks kept calling, sometimes four or five times an evening, offering equity lines, and home improvement loans. They were like drug pushers."

Solid Democratic voters, the Freemans are evidently phlegmatic in their outlook. The visitor’s gaze is drawn to their fridge door, which is festooned with humorous magnets. One says: "I am sorry I missed Church, I was busy practicing witchcraft and becoming a lesbian." Another says: "I would tell you to go to Hell but I work there and I don’t want to see you every day." A third, "Jesus loves you but I think you’re an asshole." Mark chuckles: "Laughter is the best medicine.". . .The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the "personal recession" that ordinary Americans had been suffering for years. Dubbed "median wage stagnation" by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.

The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.

Alexis de Tocqueville, the great French chronicler of early America, was once misquoted as having said: "America is the best country in the world to be poor." That is no longer the case. Nowadays in America, you have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy – even Britain on some measures. To invert the classic Horatio Alger stories, in today’s America if you are born in rags, you are likelier to stay in rags than in almost any corner of old Europe.

Combine those two deep-seated trends with a third – steeply rising inequality – and you get the slow-burning crisis of American capitalism. It is one thing to suffer grinding income stagnation. It is another to realise that you have a diminishing likelihood of escaping it – particularly when the fortunate few living across the proverbial tracks seem more pampered each time you catch a glimpse. "Who killed the American Dream?" say the banners at leftwing protest marches. "Take America back," shout the rightwing Tea Party demonstrators.

Statistics only capture one slice of the problem. But it is the renowned Harvard economist, Larry Katz, who offers the most compelling analogy. "Think of the American economy as a large apartment block," says the softly spoken professor. "A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most."

Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are. During the three postwar decades, which many now look back on as the golden era of the American middle class, the rising tide really did lift most boats – as John F. Kennedy put it. Incomes grew in real terms by almost 2 per cent a year – almost doubling each generation.

And although the golden years were driven by the rise of mass higher education, you did not need to have graduated from high school to make ends meet. Like her husband, Connie Freeman was raised in a "working-class" home in the Iron Range of northern Minnesota near the Canadian border. Her father, who left school aged 14 following the Great Depression of the 1930s, worked in the iron mines all his life. Towards the end of his working life he was earning $15 an hour – more than $40 in today’s prices.

Thirty years later, Connie, who is far better qualified than her father, having graduated from high school and done one year of further education, makes $17 an hour. The pace of life has also changed: "We used to sit around the dinner table every evening when I was growing up," says Connie, who speaks with prolonged vowels of the Midwest. "Nowadays that’s sooooo rare." Connie’s minimally educated father earned enough to allow her mother to remain a full-time housewife and still fund two children through college. Connie and Mark, meanwhile, struggle to pay off the stream of bills in a dual-income household. The state of Minnesota pays for Andy, their 20-year-old son, who suffers from acute autism, to study theatre at the local community college.

Strictly speaking, Connie actually lives in a four-income household. "When Andy was two, I was told to buy a karaoke machine because autistic children sometimes respond well to it," says Mark, pointing at what can only be described as a postmodern antique. "That’s how I got into my karaoke business. I get about $100 every Wednesday evening. And on Saturdays I manage the local liquor store. We need all four jobs to keep our heads above water." So much for the rising tide.

From the point of view of most economists, the story so far is uncontroversial. Most agree on the diagnosis. But they diverge on the causes. Many on the left blame the Great Stagnation on globalisation. The rise of China, India, Brazil and others has undercut wages in the west and put America’s unskilled, semi-skilled and even skilled workers out of jobs. Manufacturing now accounts for only 12 per cent of US jobs. Think of the typical Detroit car worker 30 years ago, who had a secure middle-class lifestyle, good healthcare and a fat pension to look forward to. Today, he lives in Shenzhen.

Another group singles out the explosion of new technology, which has enabled the most routine and easily automated jobs to be replaced by computers. Think of the office assistant, who once took dictation and brewed the coffee. She is now a BlackBerry who spends half her life in Starbucks. Or the back office person who, much like those shoemakers in the fairy tale, now stitches your accounts in Bangalore while you sleep.

Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system. Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalisation and technology. But they belong to unions in larger numbers and their healthcare is publicly funded. More than half of household bankruptcies in the US are caused by a serious illness or accident.. . .Such are the competing (but not contradictory) theories of what causes it. The "lived experience", as sociologists would say, is another matter. Much like the Freemans, whose street is boxed in for about a mile each side by long commercial roads pockmarked with boarded-up shops, dollar stores and fast food joints, the Millers could be living anywhere in the US. Only the sultry heat betrays that you are in Virginia and thus in the American South.

Falls Church, Virginia is really a suburb of Washington DC. The government’s relentless expansion has fuelled an evergreen private sector across the Potomac River that mostly deals in security, defence, government services and lobbying. Pride of place in Shareen Miller’s home goes to a grainy photograph of her chatting with Barack Obama at a White House ceremony last year to inaugurate a new law that mandates equal pay for women.

As an organiser for Virginia’s 8,000 personal care assistants – people who look after the old and disabled in their own homes – Shareen, 42, was invited along with several dozen others to witness the signing. But that was all she gained from her fleeting proximity to the president. Since then, her pay and her hours have moved steadily downwards. Last year she made $1,500 a month. Now it is $900. In common with other state governors, Bob McDonnell, Virginia’s chief executive, has been cutting budgets ruthlessly since the recession began.

Although roughly twice the size of the Freemans’ home, Shareen’s house feels even more cramped. Along with two sons, a daughter-in-law, a grandchild and her husband, Shareen has a menagerie of pets. Her patient, Marissa, a 26-year-old with cerebral palsy, often stays with them. Shareen exhibits that knockdown goodwill that you find in many Americans – in spite of having little time on her hands, she volunteers on Saturdays for the Lost Pets charity. To get anywhere the Freemans must drive. About a quarter of a mile down the road is the local intersection, with the identikit Taco Bells, 7-Elevens, dollar stores and payday loan outlets that punctuate America. It is the physical geography that differentiates places: the human geography simply repeats itself.

A well-built lady with a permanent laugh, Shareen sketches out her complex family tree – a retired father who worked in the Oregon State Penitentiary and several half brothers and half sisters, none of whom appears to be making ends meet. "Guess which one I’m closest to?" she asks with an impish smile. "None of them."

Again, technically speaking, Shareen is relatively comfortable. Because her husband works for a fire safety company and brings in $70,000 a year, the Millers are clearly surviving. But they dread what would happen if either had a medical crisis. A few years ago Shareen had a tumour removed from her diaphragm, which left her $17,000 in debt. And her husband suffers from a herniated disk. Remarkably, given that their gross joint income is double the US median, Shareen has had to postpone a dental operation for six months in order to pay off her car loan. Nor does she have time to upgrade her skills. "One thing about people who work with the disabled is that they never have any spare time," she says.. . .Much as they disagree on what has caused the Great Stagnation, economists also differ on the remedies. Most agree that better education improves people’s earnings potential, even if it does not solve the underlying problem. Others point out that not everybody can be a bond trader, a software entrepreneur or a Harvard professor. Many of the jobs of the future will be in "inter-personal" roles that cannot be easily replaced by computers or foreigners – janitors, beauty technicians, home carers and landscape gardeners, for whom college is often superfluous. Furthermore, a large chunk of Americans who have been hit by stagnation over the past decade are college graduates. Even they are not immune. But more education, at the very least, will improve one’s chances. Paying for it is another matter.

Shareen’s son and daughter-in-law, Dustin and Ruth, both aged 23, recently had to move back home because they could not afford to rent, even though both hold down jobs – Dustin with a bath remodelling company, Ruth in a fabrics store. Both did well in high school and would like to study marine biology – a skill of the future. But they cannot afford the debt.

While incomes in America are stagnating, the cost of education is soaring. Since 1990, the proportion of Americans who are paying off more than $20,000 in student loans a decade after they graduated has almost doubled. Lawrence Summers, Obama’s chief economic adviser, who has long worried about the growth of what he calls America’s "anxious middle", points out that of the major economies, the US has the highest share of graduates in the workforce. But if you take the 25-34-year-old age group, America is not even in the top 10.

More and more young Americans are put off by the thought of long-term debt. "It’s not only fear of the debt – it is the four years of lost earnings," says Ruth Miller, who was raised a Mormon and, to the bemusement of her parents-in-law, has converted Dustin to the faith. During my visit two expressionless Mormon "home visitors" wearing identical shirts and ties turned up and whisked Dustin, Ruth and their two-year-old son into their bedroom for counselling. "I would love to know what they’re saying in there," says Shareen in a stage whisper.

Having been apolitical, Shareen had a road-to-Damascus moment three years ago after she was contacted by Mark Warner, now one of Virginia’s senators, who asked to fill "a day in her shoes". The episode, which was used for publicity in Warner’s election campaign, made a fan of Shareen. Having seen how tough Shareen’s work could be, Warner bought her a $6,000 outdoor lift that enables her to bring in wheelchair-bound Marissa through the patio. "What a wonderful man he is," says Shareen. "I’d love to meet him again."

So far, Warner’s governing Democratic party has taken only limited action to address the Great Stagnation. On the campaign trail before the downturn, Obama often talked of the long years of "flat incomes" that most Americans had suffered and promised to turn their situation around. His administration has taken some steps, such as lifting budgets for community colleges to retrain workers, and launching the widely praised $5bn "race to the top" award for states to improve their schools. But the White House, too, has been overwhelmed by the immediacy of the recession.

The impact on people such as the Millers and the Freemans has been acute. First there was stagnation. Then came the recession. "It is like continually bailing water out from a sinking boat and then they take your bucket away," says Mark Freeman. Out went the pestering calls from the banks urging them to take on even more debt. In came the bailiffs. "One day, the banks are sucking up to you, the next they hate your guts," he says with a Gallic shrug. Only through the help of a friendly lawyer did they escape foreclosure. The Bank of America, which received a $45bn taxpayer bail-out in late 2008, lost the Freemans’ paperwork several times. Each time they had to go through the laborious appeal process again.

"I suspect the bank wanted to foreclose because we were so near to paying off the mortgage," says Mark. "It was more profitable for them that way." Eventually the Freemans proved they could keep up with the payments. Mark calculated they have paid $163,000 so far on a house they bought for less than one-third of that amount. It could all have been for naught. More than four million homes have been repossessed in the past three years. "Things have gotten so bad that before the price of copper fell, people were breaking into boarded-up houses to strip them of their wiring," says Mark.. . .What, then, is the future of the American Dream? Michael Spence, a Nobel Prize-winning economist, whom the World Bank commissioned to lead a four-year study into the future of global growth, admits to a sense of foreboding. Like a growing number of economists, Spence says he sees the Great Stagnation as a profound crisis of identity for America.

For years, the problem was cushioned and partially hidden by the availability of cheap debt. Middle-class Americans were actively encouraged to withdraw equity from their homes, or leach from their retirement funds, in the confidence that property prices and stock markets would permanently defy gravity (a view, among others, promoted by half the world’s Nobel economics prize winners, Spence not included). That cushion is now gone. Easy money has turned into heavy debt. Baby boomers have postponed retirements. College graduates are moving back in with their parents.

The barometer is economic. But the anger is human and increasingly political. "I have this gnawing feeling about the future of America," says Spence. "When people lose the sense of optimism, things tend to get more volatile. The future I most fear for America is Latin American: a grossly unequal society that is prone to wild swings from populism to orthodoxy, which makes sensible government increasingly hard to imagine. Look at the Tea Party. People think it came from nowhere. While I don’t agree with their remedies, most Tea Party members are middle-class Americans who have been suffering silently for years."

Spence admits he is thinking aloud and going "way beyond the data". And he concedes that America probably still retains its most vibrant strength in its still world-beating capacity for technological innovation. Most economists are not as bleak as Spence. But it is in the neighbourhoods among ordinary Americans that his pessimism gets its loudest echo. "To be pessimistic about the future is so new for Americans and so strikingly un-American," says Spence. "But most people grasp their own situations way better than any economist.". . .Every now and then the Freemans invite their neighbours round to their front porch, to watch the world go by, drink beer and eat Connie’s justly renowned dish of Minnesota wild rice. In the best American spirit, Mark and Connie are active neighbourhood people. They are the types who shovel your snow, volunteer for school events, and coach the baseball little league – Mark has done all three.

It takes optimism to be like this. But in the past few years the Freemans have been running low on it. "I guess the penny dropped in the last 18 months when we finally realised that it’s always going to be like this – we are never going to be able to retire on our savings," says Connie. "As for Andy," she says, referring to her painfully shy but acutely observant son, "the future really frightens me. If you’re young, it’s bad enough nowadays. But for a kid with autism?"

When I asked what the American Dream means to them, Mark looked despondent. "It’s not a dream," he said. "I would hate to sound like one of those Tea Party people but I really do want my country back. I just don’t feel like that is going to happen." His words reminded me of a famous quip by George Carlin, the late, great American comedian – "It’s called the American Dream because you have to be asleep to believe it."

Having been told that karaoke had worked miracles on Andy’s autism as an infant, I asked whether he still liked to croon. Mark and Connie both instantly beamed. "You should see Andy down at the club singing word-perfectly and playing up flirtatiously to the women," said Connie. "He turns into a different person." When Andy came outside, I asked if he would sing. Without skipping a beat he launched into a flawless rendition of "The Impossible Dream", the song from Man of La Mancha, the 1970s Broadway hit. His performance was uncanny.

"To dream the impossible dream, to fight the unbeatable foe, to bear with unbearable sorrow, to run where the brave dare not go. To right the unrightable wrong, to love pure and chaste from afar, to try when your arms are too weary, to reach the unreachable star. This is my quest: to follow that star, no matter how hopeless, no matter how far." It was one of those only-in-America moments. When Andy stopped singing, I turned to Mark and Connie. For an uncharacteristic moment, they were both silent

They are perhaps the best-educated generation ever, but they can’t find jobs. Many face staggering college loans and have moved back in with their parents. Even worse, their difficulty in getting careers launched could set them back financially for years. The Millennials, broadly defined as those born in the 1980s and '90s, are the first generation of American workers since World War II who have cloudier prospects than the generations that preceded them.

Certainly the recession has hurt young workers badly. While the overall unemployment rate was 9.5 percent in June, it was 15.3 percent for those aged 20 to 24, compared with 7.8 percent for ages 35-44, 7.5 percent for ages 45-54 and 6.9 percent for those 55 and older. Among 18-to 29-year-olds, unemployment is the highest it’s been in more than three decades, according to a recent report from Pew Research Center. The report also found that Millennials, also known as Generation Y, are less likely to be employed than Gen Xers or baby boomers were at the same age.

Millennials are generally well-educated, but they have have been cast as everything from tech savants who will work cheap to entitled narcissists. The recession has pitted these younger workers against baby boomers trying to save for retirement and Gen Xers with homes and families.

Just ask Michael Barreto. Eleven months was all it took to bring him from post-graduation autonomy back to his parents’ home in Apple Valley, Calif. Armed with an undergraduate degree in literary journalism from the University of California, Irvine, and experience from an internship, the 23-year-old Barreto believed he had a better chance than many of his peers to find a job. But more than a year after graduation, Barreto is still struggling to find employment. "Right now I'm just trying to find any sort of full-time work that would allow me to live on my own and save money for the future," he said.

Like many of his peers, Barreto left college with roughly $21,000 in federal loans. (The 2008 average for college students was $23,000, according to the College Board.) Barreto's parents also took out loans to help him afford college. Despite landing a job at Panera Bread Co. to support himself while looking for a job as a journalist, Barreto drained most of his savings to pay for his living expenses. He was eventually forced to move home and defer his loans.

The high unemployment rate among young Millennials can affect them financially and psychologically throughout their careers, according to a report by the Joint Economic Committee. "The 'scarring effects' of prolonged unemployment can be devastating over a worker’s career," according to the report. "Productivity, earnings and well-being can all suffer. In addition, unemployment can lead to a deterioration of skills and make securing future employment more difficult."

Many Millennials have sought refuge back at school from the worst job market since at least the early 1980s. Yet that strategy, too, can backfire as students incur staggering amounts of debt to pay for advanced degrees that might not help them out much in the job market. Jordan Hueseman, 25, accrued roughly $100,000 in student loans at the University of Denver earning a bachelor's degree in international business and a master's in business administration. On the job hunt, he found his graduate degree sometimes hindered more than it helped.

"At one point, I applied to Whole Foods, hoping they might see some potential for me to move to some type of management position," Hueseman said. "The e-mail I received from them said I was far too overqualified for any of their hourly positions and as such would not be considered for a position." Hueseman said that after one job application, he was told he should leave his degrees off his resume. Hueseman said he was tempted to follow the advice but couldn’t bring himself to do it.

"It’s a personal thing for a couple of us and a bit prideful, but the idea we just spent five years — and a hundred thousand dollars for some of us — obtaining two degrees, to go ahead and wipe that right back off our resume in hopes of getting a $12-an-hour job at Starbucks would really be depressing," he said. Even if they did feel inclined to do it, they'd be competing for that job with their peers and with plenty of older jobless workers. About 15 million Americans currently are out of work, 45 percent of them for at least six months.

Competing against older workers with years of experience has put many Millennials on the losing end of job interviews. And while that's typical of past recessions, the long-term unemployment characteristic of this cycle is forcing many older workers to seek jobs that would have gone to younger workers in the past.

"The average length of unemployment now is almost like six months, which is an all-time high, so the longer people are unemployed and the longer they go without being able to find a job, the more willing they are to accept a job that’s lower paying or for which they’re overqualified," said economist Marisa Di Natale of Moody’s Economy.com. Baby boomers also are delaying their retirement, adding to the competition. A quarter of workers postponed their retirement in the past year, with 33 percent of workers now expecting to retire after 65, according to a retirement survey by The Employment Benefit Research Institute.

If they do manage to get hired, younger employees are often the first to be fired in layoffs. And when Millennials do land a job, it probably won’t be as lucrative due to intense competition for jobs. That means that this generation’s potential earning power is likely to lag over the course of their careers. Young workers who start off in a recession generally begin in lower-ranking positions and have difficulty shifting into better jobs the first 15 years of their careers, according to a study that looked at the experience of workers who launched their careers in the early 1980s.

Young workers on average lost over $100,000 in earnings over the course of their careers due to the recession, concluded the study by Lisa B. Kahn of Yale University. When asked if Millennials will face similar income losses, Kahn said it’s somewhat difficult to predict but likely. "There are a lot of similarities with this recession to the recession of the 1980s in that it was the biggest we’d seen since the Great Depression. It’s affecting educated workers, so my guess would be unfortunately, yes," Kahn said.

If you are worried about the future of Social Security, join the crowd.

With the nation’s debt swelling, the pressure on Washington to cut spending will only rise. Social Security may not be the first place lawmakers look. But the program, which has provided a significant financial cushion for retirees and others since the first checks were mailed in 1937, will surely be part of the discussion. The program, which has its own dedicated stream of income, is projected to pay out more this year than it is taking in, but that is a function of the weak economy. Social Security will, according to the last annual report from its trustees, be able to pay full benefits through 2037. Then, if there are no changes in the program in the meantime, the taxes collected will be enough to pay out only about 75 percent of benefits through 2083.

So while Social Security’s finances are stable in the short term, most experts agree that the program needs to be bolstered for the long term. Among the proposals circulating is one from Representative John Boehner of Ohio, the House Republican leader, who recently suggested raising the retirement age to 70 for people at least 20 years from retirement. Other options include increasing Social Security payroll taxes, subjecting more income to the tax, reducing initial benefit payments or cutting cost-of-living increases (which would affect current retirees).

But even if it’s not clear yet what, if anything, will be done to Social Security and when, we thought it would be useful to look at a worst-case possibility — to assume that benefits will not continue to be as generous. This is especially important as pensions continue to fade away. So what are the financial implications of pushing back the full retirement age? What happens if the government reduces benefits for future retirees? What will that mean to people in the middle of their careers, beyond the rote response that they’re going to have to work longer and save more?

Yes, it means fewer dinners out and driving a more economical car. But it also may mean that people in their 20s, 30s or even older have to put aside a lot more money to partly make up for any cut to benefits. Otherwise, people may risk a sudden drop in their living standard when they retire. And while lawmakers may, in the end, not decide to make drastic changes in Social Security, many of the financial advisers and other experts we talked to said they were erring on the side of caution and were already recommending that their clients start saving more now.

"People 50 and below should change their planning now to incorporate a benefit cut," said Laurence J. Kotlikoff, an economics professor at Boston University who ran some numbers for us to see what life would be like if the retirement age were immediately raised to 70. That change would translate into a nearly 20 percent cut in benefits, because you would have to wait an extra three years to get the same amount of money, he added.

Several financial planners told us they were assuming that clients in their 30s and 40s might receive just 50 to 80 percent of their full benefits. Or, the advisers say, they may figure that the cost-of-living adjustments applied to benefits won’t keep pace with inflation, or some other combination of adjustments. (For the record, executives from AARP said their polls had long shown that younger people were skeptical about receiving full benefits.) "It’s better to be conservative now than risk being underfunded for retirement," said Jorie Johnson, a financial planner in New Jersey.

Mr. Kotlikoff’s calculations looked at how a couple’s spending and saving patterns might have to change if the government raised the full retirement age to 70 (we assumed it was imposed right away, though such a change would probably be phased in over many years). That would essentially translate to a 19 percent cut in monthly benefits, according to Mr. Kotlikoff. He performed the calculations using his company’s retirement planning software, ESPlanner, which shows what people need to save to ensure a consistent standard of living over the course of their lives.

Our examples illustrate how a cut in benefits might feel if you had longer to plan for it — say, you were 35 years old when the system changed. We also looked at the repercussions for a 45-year-old or a 55-year-old. In all cases, we based our assumptions on a married couple with two children and a $350,000 mortgage on a house in New York State. They save 10 to 15 percent of their income during their careers (the rate rises as they age) as well as an additional $100,000 for their children’s college education. They earn a conservative 2 percent above inflation on their retirement savings and retire at 65 but take Social Security benefits at 67, three years before full retirement age.

Some people may not have the wherewithal to save a whole lot more. Indeed, about half of all recipients start collecting benefits as soon as they’re eligible, at age 62, because in some cases Social Security is their main income. But here’s how a family with more flexibility might fare:

At 35 Years Old At this stage, our couple are earning $120,000 ($60,000 each) and they have $75,000 in total retirement savings. But to make up for the decline in Social Security benefits, they need to save about $84,474 above and beyond what they are already saving before they retire. We assume they save the extra money in a taxable account that allows for easy access, because they are already saving 10 percent or more of their total income in a 401(k). That extra money saved is equivalent to about a 7.8 percent increase in total retirement savings, across all accounts. This also means they’ll have less discretionary income — about 9.4 percent less to be exact — to spend each year, over the course of their lives.

At 45 Years Old Our couple now earn $140,000 and has amassed about $255,000 in a 401(k) account. But if they learn their Social Security benefits are going to be cut by nearly 20 percent, they will need to save nearly an extra $90,000 — which is about 8.3 percent more in their taxable and tax-deferred accounts — by the time they retire. To do that, they need to cut their discretionary spending by about 9.7 percent a year for the rest of their lives. "They have a larger permanent reduction in their living standard than the 35-year-olds because they have fewer years to adjust," Professor Kotlikoff said. "They can’t spread out the loss in spending power over as many years."

At 55 Years Old Informing people a mere decade from retirement that their Social Security payments will be cut or that the retirement age will rise, is not likely, experts said. Even so, let’s assume the worst for a moment. At 55, our couple are earning about $175,000, and has nearly $525,000 in total retirement savings. But to help offset the lost Social Security money, they will need to save $82,900 more — or nearly 7.7 percent across all accounts — over the next decade. To do that, they will have to spend 10.4 percent less each year.

"Increases in Social Security’s retirement age is another way to say Social Security benefit cut," Professor Kotlikoff said. "And big benefit cuts, like those being contemplated, will mean big hits to the spending power of the affected generations. Younger cohorts would suffer less pain, but for a longer time, while older cohorts experience more pain for a shorter time. Either way you cut it, it hurts."

One financial planner, who has dual citizenship in the United States and Greece, said he was not taking chances. "Having seen what happened in Greece, I feel even more strongly today that I should not count on any Social Security for me and my younger clients," said the planner, George Papadopoulos, 43, of Novi, Mich. "I will continue to tell clients not to highly rely on Social Security and think of any money coming their way as gravy."

U.S. local governments may cut almost 500,000 jobs through next year to cope with sliding property taxes, a decline in state and federal aid and added need for social services, according to a report released today. The report, a result of a survey by the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties, showed local governments are moving to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011. That suggests 481,000 employees will lose their jobs, according to the report, which said the tally may yet rise.

"Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services," said the study, which was released in Washington today. While a separate report by the National Conference of State Legislatures today said U.S. state revenue is recovering from the drop in tax collections caused by the 2007 recession and the slow pace of job growth since, the greatest blow to local governments will be felt from now through 2012, the local groups said.

They called on Congress to pass a bill that would provide $75 billion in the next two years to local governments and community-based groups to stoke job growth and forestall deeper cuts. Such a move may face political obstacles. Governors have appealed to Congress to extend additional aid to cover the cost of providing health care under Medicaid, the state-run program for the poor. The proposal stalled in the Senate, where the Republican minority has raised concern about the size of the federal deficit.

Property TaxesThe local groups said their budgets are likely to be hit by a drop in property taxes, which trail changes in home values because of the way assessments are calculated. Although prices peaked in 2006, property taxes paid to state and local governments kept rising until the first three months of this year, according to annual totals compiled by the U.S. Census Bureau. "Over the next two years, local tax bases will likely suffer from depressed property values, hard-hit household incomes and declining consumer spending," the report said.

The need for state and local governments to balance their budgets has weighed on the economy, damping the recovery. Spending fell at an annual pace of 3.8 percent during the first three months of this year, the steepest drop since the onset of the recession, according to U.S. Commerce Department. By June, local governments had cut their payrolls to 14.4 million from 14.6 million, according to the U.S. Labor Department data adjusted to take account of seasonal variations.

Distressed CitiesThe fiscal strains have pushed some local governments into distress. In 2008, Vallejo, California, filed for bankruptcy protection. Reading, Pennsylvania, last year sought refuge under the state’s program for distressed municipalities. This month, a state appointed receiver took over in Central Falls, Rhode Island, a cash-strapped town of 19,000. Ron Loveridge, the mayor of Riverside, California, one of the areas worst affected by home foreclosures, said cities are struggling to meet the basic needs of their communities, such as running parks, libraries and fire departments.

"For local governments, unemployment and foreclosures resulting from the Great Recession translate into too few revenues making it increasingly difficult to fund or satisfactorily maintain many basic services," Loveridge, who is also the president of the National League of Cities, said in a statement.

As California staggers toward the fifth week of the fiscal year without a spending plan, a month of closed-door talks in the Capitol have produced little but tension and finger-pointing. The calendar is flipping toward August with no resolution in sight. Top officials don't even publicly agree about what they agree upon. The two parties are staging stunts at the Capitol and trading barbs in dueling radio addresses, each side accusing the other of being dug in or disengaged, or both.

Gov. Arnold Schwarzenegger has demanded overhauls of the public pension system, the state tax code and the budgeting process, on top of the annual budget-balancing struggle. He has said he won't sign a spending plan that lacks those things, and California could languish without one until he leaves office — in 2011. Senate President Pro Tem Darrell Steinberg (D- Sacramento) retorted that he was "prepared to grant his wish."

Meanwhile, California's unpaid bills are piling up, the state's worst-in-the-nation credit rating faces another downgrade and the prospect of printing IOUs for the second time in as many years threatens on the horizon. "Every passing day of political paralysis leads us closer to a completely avoidable fiscal meltdown," state Controller John Chiang, a Democrat, warned officials in a written statement this week.

The state's $19.1-billion shortfall remains despite a temporary increase in taxes last year and lawmakers' slashing of billions from school budgets. Tuition at public universities has skyrocketed, and healthcare and other services for the poor have been scaled back. The hangover from last year's budget decisions has infected this year's debate. Democrats are weary of cutting, and Republicans are standing fast against higher taxes; neither side has publicly expended any political capital to move toward compromise. "This debate is about two fundamentally different philosophies of government," Matt David, Schwarzenegger's communications director, said in a statement Tuesday.

Schwarzenegger proposed deep cuts this year, including the elimination of welfare, to close the deficit. Democrats have countered with some tax increases, mainly on oil companies, and the rollback of some corporate tax breaks. Assembly Speaker John A. Pérez (D- Los Angeles) backs a borrowing-based plan that would push off hard decisions for a year. Steinberg wants a mixture of tax hikes and cuts. "The Democrats can't even agree among themselves," Senate GOP leader Dennis Hollingsworth (R-Murrieta) said in a radio address last week, although the Democrats say they are united.

Schwarzenegger, in his own radio speech, castigated lawmakers for bolting town "on vacation." The rank-and-file will return from summer recess next week. Some officials stay upbeat publicly: "Pessimism doesn't get you anywhere," Pérez said Tuesday. He and other Democrats say they have found common ground with Republicans on how to fill more than half of the state's $19-billion shortfall, citing areas of accord such as accounting shifts, brighter economic assumptions and aid from Washington. Republicans and the governor acknowledge no such meeting of minds.

A testy moment came last week during private talks among legislative leaders, according to several people who spoke on condition of anonymity because of the nature of the discussions. Assembly GOP leader Martin Garrick (R-Solana Beach) sternly told his Democratic counterparts to "man-up" and cut some programs. The remark got a chilly reception. Talk of a prolonged stalemate worries George Usi, owner of the Sacramento Technology Group. His company goes unpaid, as all vendors who do business with the state do, as long as California has no budget.

State contracts account for about 35% of his revenue, Usi said, and California already owes his firm $220,000 in late payments. Another $450,000 falls past due within days. A months-long standoff would "put businesses like us in a situation where we're going to have to let people go," Usi said. Chiang said this week that IOUs will become a necessity in late August or September if the gridlock drags on and California's credit could descend to "junk status."

Officials on all sides are eager to avoid blame for the gridlock in this election year; they are busy blaming one another. Last week, the state's Democratic and Republican parties hosted mock bake sales on the Capitol steps to portray their opponents' budgetary deficiencies. The Democrats hawked empty pie shells to symbolize the lack of a GOP plan. Republicans offered Pérez an Easy-Bake oven and a recipe to finish cooking his "half-baked" budget ideas.

"Roll out a thin bureaucratic crust…mix in a big dose of reality…toss in a pinch of compromise…toss out the sour grapes," read the GOP instructions. Pérez's office declined the gift, but the speaker said Tuesday that he was out of town at the time but would gladly have accepted it.

California Governor Arnold Schwarzenegger declared a state of emergency over the state's finances on Wednesday, raising pressure on lawmakers to negotiate a state budget that is more than a month overdue and will need to close a $19 billion shortfall. The deficit is 22 percent of the $85 billion general fund budget the governor signed last July for the fiscal year that ended in June, highlighting how the steep drop in California's revenue due to recession, the housing slump, financial market turmoil and high unemployment have slashed its all-important personal income tax collection.

In the declaration, Schwarzenegger ordered three days off without pay per month beginning in August for tens of thousands of state employees to preserve the state's cash to pay its debt, and for essential services. California's budget is five weeks overdue, joining New York among big states with spending plans yet to be approved, and Schwarzenegger and top lawmakers are at an impasse over how to balance the state's books.

Analysts say it could be several more weeks before the Republican governor and leaders of the Democrat-led legislature reach an agreement, a delay that threatens to lower the state's already weak credit rating, now hovering just a few notches above "junk" status. "Without a budget in place that addresses our $19 billion budget deficit, every day of delay brings California closer to a fiscal meltdown," Schwarzenegger said in a statement. "Our cash situation leaves me no choice but to once again furlough state workers until the legislature produces a budget I can sign," he wrote.

Schwarzenegger's declaration noted the state's government is projected to run out of cash no later than October should its budget stalemate persist, as expected. California has a long history of nasty and lengthy budget battles. Last year, the fight over a spending plan dragged on so long the state controller had to issue IOUs instead of payments to vendors to conserve money for priority payments, including payments for education programs and for investors holding the state's bonds.

IOUs As Early As Next MonthSchwarzenegger's declaration noted State Controller John Chiang has said he could be forced to issue IOUs as early as next month because of the budget impasse. Schwarzenegger has proposed slashing spending to balance the state's books, an approach rejected by Democratic lawmakers. Their leaders in the state Senate and Assembly are trying to draft a joint plan likely to include proposals for tax increases to rival the governor's budget plan.

By ordering furloughs, which he also did last year, Schwarzenegger is bringing pressure on state employee unions allied with Democratic lawmakers on the heels of losing a courtroom battle to cut state employees' pay to the federal minimum wage to bolster the state's finances. Schwarzenegger's new furlough order was instantly condemned by labor officials as a political ploy. "To once again force state employees to take unpaid furloughs is just another punitive measure by Governor Schwarzenegger because he couldn't impose minimum wage," said Patty Velez, president of the California Association of Professional Scientists.

The declaration exempted state employee bargaining units that recently agreed with Schwarzenegger's administration to new contracts that include reduced pension benefits. Schwarzenegger has said he will only sign a budget agreement if it includes an overhaul of the state's public pension system, which includes the California Public Employees' Retirement System, the biggest U.S. public pension fund, which he says poses one of California's greatest financial challenges going forward.

Schwarzenegger clearly has no qualms in the final months of his final term about pressuring lawmakers through the wallets of one their top constituencies, said Pete Peterson, executive director at the Davenport Institute at Pepperdine University's School of Public Policy. "It's an indirect play," he said. " ... these past few months there has been a much more confrontational relationship between the governor and the unions."

The Rev. Joseph Tracy said he’s tired of going to funerals. And now, he suspects he’ll be going to more of them. "It’s open field day now," said Tracy, the pastor of Straightway Baptist Church here. "The criminals are going to run wild." Gang activity. Drug dealing. Cold-blooded killing. Tracy worries that a decision to shrink the police force by almost 30 percent will bring more of everything.

The pastor voiced his concern on Friday at a raucous special City Council meeting at which East St. Louis Mayor Alvin Parks announced that the city will layoff 37 employees, including 19 of its 62 police officers, 11 firefighters, four public works employees, and three administrators. The layoffs take effect on Sunday. Parks said the weak economy has robbed the city of badly need money. For example, revenue from the Casino Queen was $900,000 below budget expectations last year. There are no signs of improvement, Parks said.

"I want our citizens to know we have some of the bravest police officers and firefighters in the country," Parks said. "But we don’t have the money to pay them. We have to have fiscal responsibility." City officials wanted police and fire unions to accept a furlough program that would have required employees to take two unpaid days in each twice monthly pay period. If accepted, emergency responders would have seen a pay cut of about 20 percent for the rest of the year. Parks said the two sides couldn’t reach an agreement. On Friday, he stared at a standing-room only crowd and told his emergency response chiefs words they didn’t want to hear: "Tell your workers to start packing their things."

The news spurred shouts from the crowd. "The blood is on your hands," yelled Michael Hubbard, an East St. Louis police officer. Hubbard said he will be the lone patrolman for East St. Louis’ midnight shift when the cuts go into effect. "This is devastating," Hubbard told a reporter after the meeting.

East St. Louis has been crippled by crime and poverty for decades. Police officials say the cuts will mean fewer officers for patrols, investigations and juvenile cases. Fire officials said the region should be upset because the department will have fewer people at the ready to fight fires on some of the region’s major highways and bridges. The police already rely on other agencies to handle some of the heavy case load. For example, the Illinois State Police routinely work on the city’s homicide investigations.

Capt. Steve Johnson, of the St. Clair County Sheriff’s Department, said his agency has no plans for stepping up work in East St. Louis. "We don’t do calls for service in East St. Louis," Johnson said. "But, if we’re called for assistance, we will help when we can." Worries about East St. Louis’ crime rate got little sympathy from Councilman Roy Mosley, who gave a 10-minute speech on Friday blasting the city’s police officers. "We don’t have the money," Mosley said. "You lay off when you don’t have the money. The money’s gone."

Mosley complained that police officers take patrol cars home, park them in other jurisdictions, and misuse the city’s gasoline. "I’m only telling the truth," he shouted. The crowd jeered. "You can see how disrespectful they are," Mosley said while pointing at the police officers. "You see what they’re doing to me right now." Richard V. Stewart Jr., an attorney for the Illinois Fraternal Order of Police union, said Mosley’s claims are untrue. Stewart said the words amounted to nothing more than "political grandstanding." "Unfortunately, this is what I expected," Stewart said.

The union plans to fight the layoffs and work to get the jobs back. Bad blood already exists between the two sides. An arbitrator has ruled that the city improperly imposed unpaid furlough days on its employees earlier this year. The city was ordered to pay $500,000 back in lost wages. On Friday, the city approved a proposal to defer bond payments until next year in order to free up $500,000. "Next year is a different situation," Mayor Parks said.

Whomever President Barack Obama taps to head the new Bureau of Consumer Financial Protection could find it difficult to keep ahead of the credit-card industry. The Credit Card Accountability Responsibility and Disclosure Act of 2009, known as the Card Act, was intended to reshape the contours of consumer finance. Among other things, it forces card issuers to give customers more notice about interest-rate increases and restricts certain controversial billing practices such as inactivity fees.

Yet some of the biggest card issuers in the U.S., including Citigroup Inc., J.P. Morgan Chase & Co. and Discover Financial Services, are already rolling out a slew of fees designed to recapture some of their lost income, in part by skirting the new rules. Some banks may even be violating the law outright, say consumer advocates. "Card companies are figuring out how to replace old fees with new ones," says Victor Stango, an associate economist with the Federal Reserve Bank of Chicago and a professor at the University of California, Davis, who has been analyzing how the Card Act will affect consumer banking. "It's a race between regulators writing ever-more-complex laws and credit-card companies setting up ever-more-complex fees."

The banks have a big gap to fill. The Card Act is expected to wipe out about $390 million a year in fee revenue, according to David Robertson, the publisher of industry newsletter Nilson Report. On July 16, during its second-quarter earnings call with analysts, Bank of America Corp. Chief Financial Officer Charles Noski warned that the Card Act and other regulatory changes would prompt the bank, the nation's largest in assets, to write off up to $10 billion in the third quarter. "If you have every major issuer saying that we are losing our shirt, then that speaks volumes," Mr. Robertson says. "Proportionately, these fees should be understood as almost inconsequential compared to the losses."

So the banks are getting aggressive. According to a July 22 report from Pew Charitable Trusts, a nonpartisan research group, the industry's median annual fee on bank credit cards jumped 18% to $59 between July 2009 and March 2010. At credit unions, annual fees soared 67% to $25. During the same period, the median cash-advance and balance-transfer fees jumped by 33%. All of these increases are perfectly legal, of course. Banks and other issuers would have a difficult time extending credit to consumers, even at high interest rates, if they couldn't augment those revenues with fee income. "We're coming out of a deep recession that issuers are still working through," says Peter Garuccio, a spokesman for the American Bankers Association.

But some banks may be going too far. In a July 7 letter to the Office of the Comptroller of the Currency, which regulates many of the biggest U.S. banks, a coalition of consumer groups including the National Consumer Law Center, the Consumer Federation of America and Consumer Action flagged several "potential violations of the Credit Card Act." Other banks are ramping up their marketing of so-called professional cards. These are like corporate cards but can carry the same terms as consumer cards—and aren't covered under the new law.

In the first quarter of this year, issuers sent out 47 million professional-card offers to U.S. households, up from 13.2 million in the corresponding period last year, according to research firm Synovate. "This can be a very easy way around the Card Act," says Josh Frank, a senior researcher at the Center for Responsible Lending, a consumer group. The upshot: Borrowers must be more vigilant than ever—even before they make their first charge on a new credit card.

'Saddled With Late Fees'Alan Condon of Woodstock, Ga., says he carefully reviews his card statements each month, and even read the Card Act—all 33 pages—after it was passed in May 2009. Among other things, the Card Act stipulates that late-payment fees shouldn't be triggered on a Sunday or holiday, when there is no mail delivery. The rule "is clearly meant to offer cardholders some semblance of relief so that they don't get saddled with late fees for making a reasonable payment on the next business day," says Chi Chi Wu, a consumer credit lawyer at the National Consumer Law Center.

Mr. Condon says he was shocked when he opened his credit-card statement dated June 18 and saw that Discover had charged him $39 for a late payment—and had upped his interest rate on future purchases from 17% to 24.99%. He says the company considered him late because he paid on June 14, instead of June 13, a Sunday. "I just got mad," says the 56-year-old computer-software developer, who says he had never before been late on a Discover payment. "We were in compliance with the Card Act," says Discover spokesman Matthew Towson. "The law states that if a creditor does not receive or accept payments on weekends or holidays, then the date is extended. But we accept payments seven days a week."

Nevertheless, Discover reviewed Mr. Condon's account at The Wall Street Journal's request and decided to waive the late fee and reduce Mr. Condon's interest rate to its earlier level. The Card Act also stipulates that issuers can't jack up rates on existing balances unless a cardholder is at least 60 days late. But there is a creative maneuver around that: the so-called rebate card. Citibank rolled out rebate-card offers to some of its customers last fall, offering to refund up to 70% of finance charges when customers pay on time. The problem: Rebate offers aren't governed by the Card Act, and an issuer can revoke them suddenly and hit cardholders with high charges.

The net result is the same as raising rates—and because it is perfectly legal, customers have little recourse. "Rebates on finance payments may seem like a good deal, but you could end up with a very high interest rate suddenly," says Mr. Frank, of the Center for Responsible Lending. "The rebate offer is clear, transparent, and we believe fully within the spirit of the Card Act," says Citigroup spokesman Samuel Wang.

Shortening the billing cycle is another new tactic some banks may be using. The Card Act requires companies to provide a window of at least 21 days from when a statement is mailed and when payment is due. Yet the National Consumer Law Center and Consumer Action say they have received complaints from borrowers who allege that their billing cycles have been shortened to fewer than 21 days."Since the passage of the act, we've heard from numerous borrowers alleging that they are shortchanged on billing cycle time," says Joe Ridout, a consumer-services manager at Consumer Action.

Inactivity Fees ReturnAs expected, issuers also are raising basic fees in the wake of the Card Act, in some cases significantly. Many credit-card companies, for example, are increasing their balance-transfer charges sharply. "We are seeing an increase across the board in fees because card companies are sensitive about their ability to price for risk," says Mr. Robertson of the Nilson Report. Last June, for example, J.P. Morgan's Chase unit alerted customers that its maximum balance-transfer fee was rising to 5% from 2% on a wide range of its cards.

"In a higher-loss environment, it's important that we are prudent with our balance-transfer offers," says Stephanie Jacobson, a spokeswoman for the bank. She adds that "We often do have lower rates in a competitive marketplace." Companies are raising their minimum finance charges, too. Before the Card Act, the average minimum monthly finance charge was about 50 cents, according to Nick Bourke, director of the Safe Credit Card Project at Pew. Now, he says, those fees can reach $1.50. That difference might not seem like a lot, but it adds up: Borrowers pay $430 million a year in minimum-finance charges alone, according to the Center for Responsible Lending.

The Card Act's provisions are being implemented in stages, with the last phase taking effect on Aug. 22. After that, issuers will no longer be able to charge "inactivity fees," or extra charges for people who don't spend a certain amount each year. So companies are dressing them up in other ways. Citigroup, for example, has started charging some of its customers an annual fee, which can be waived if a customer's card activity exceeds $2,400 a year.

Tristan Denyer of San Francisco says he was surprised when he got a notice that Citigroup was instituting a $60 annual fee on his card. Mr. Denyer, 37, a senior Web designer, says he rarely carried a balance on his card, and refused to rack up the $2,400 in charges necessary to erase the fee. "I figured this was just a tactic to get me to spend more and give them more money," Mr. Denyer says. He says he decided to close his account. Citigroup's Mr. Wang acknowledges that Card Act rules forbid the waiving of annual fees based on "a customer's annual spending on the card." He adds, however, that "the rules will not prohibit cash-back rewards or similar incentives that encourage account usage."

Another potential trap: low-credit-limit cards, which are popular among college students. The Card Act says a card's total annual fees can't exceed 25% of a borrower's credit line. But some issuers may be evading the fee restrictions by charging an upfront processing fee that doesn't fall under the 25% cap. First Premier Bank, headquartered in Sioux Falls, S.D., offers several low-credit-limit cards. Its Centennial card comes with a $300 limit and a $95 upfront processing fee.

Melinda Robinson of Lorena, Texas, learned firsthand how rapidly fees could eat into her credit limit. After receiving a card with a $250 credit limit from First Premier, she says, she was immediately charged $170 in combined fees. When she tried to use the card for the first time, she exceeded her credit limit, triggering more fees. "When they first send you the card, they automatically charge you fees that eat up half of it," says Ms. Robinson. First Premier Bank's president and chief executive, Miles Beacom, says the $95 processing fee doesn't violate the Card Act because it is assessed before the account is opened. He adds that the fee offsets the risk associated with offering these cards to "high-risk individuals."

Foreign-transaction fees are on the march as well. The average fee for foreign transactions has jumped to 3% of the transaction from roughly 2% in 2008, according to Ben Woolsey, director of marketing and consumer research at Creditcards.com. Some card holders are finding they don't even need to leave their living room to get hit with a foreign-transaction fee. Ruth Ann Sando, a small-business owner in Washington, says she has been burned repeatedly on her Visa card issued by Pentagon Federal Credit Union, the third-largest credit union in the U.S.

Ms. Sando used to do a lot of business with AbeBooks, an online retailer. But she found that she was getting hit with foreign-transaction fees even though her purchases were in dollars. That is because while the seller and shipper were based in the U.S., Abe, headquartered in Canada, provides the forum for book sellers and collects a portion of the proceeds from all sales. So late last year, Ms. Sando says, she decided to stop buying from the site altogether. "Not buying books is the only way I can protest the fee," she says. "The fee is legal, but all these fees circumvent the [Card Act's] goal of clear and straightforward pricing," Mr. Woolsey says. Pentagon Federal Credit Union says some of its cards carry a foreign-transaction fee of 2% of the U.S. dollar amount of the transaction.

Fighting BackWhile the credit-card landscape may seem littered with landmines, there are ways to guard against some of the worst pitfalls. The first and simplest: Make your card payments on time. Second, say consumer advocates, people should dispute fees directly with the issuer when they believe something is amiss. "Cardholders would be surprised at how much they can raise hell and get a change," says Mr. Condon, who says he immediately contacted Discover after the late charge appeared on his statement.

They might have to make repeated calls, however. "While the Credit Card Act did make great strides in protecting consumers, it in no way closed all avenues for cardholders to get hit with fees," says Ms. Wu, from the National Consumer Law Center. "It's a first step."

For a soft-spoken, unfailingly polite university professor, Elizabeth Warren has a surprising knack for making people squirm — particularly on Wall Street. She's done it to Treasury Secretary Timothy F. Geithner and other administration officials. As head of the watchdog panel monitoring the $700-billion federal bank bailout fund and a former high school debating champion, Warren often has put them on the defensive with pointed questions, such as: "Do you know where the money went?"

She's done it to lobbyists and lawmakers who unsuccessfully fought the creation of a new federal agency to protect consumers in the financial marketplace. As a bestselling author who can make complex issues understandable, Warren frustrated opponents by keeping the focus on the industry's failures. "I want to turn to these guys sometimes and I want to say, 'What part of "We bailed you out" do you not get?'" she said on "The Daily Show With Jon Stewart" in January.

Now Warren has Wall Street executives, bankers and business groups extremely nervous. As the person to propose such an agency and one of its most outspoken advocates, the Harvard law professor is a leading candidate to be nominated by President Obama as director of the new Consumer Financial Protection Bureau. That would make Warren, 61, one of the most powerful regulators of the financial industry.

Her pro-consumer views on outlawing what she calls the "tricks and traps" in mortgages, credit cards and other financial products — beliefs developed during her three decades of bankruptcy research — have industry officials gearing up for a major confirmation fight if she's nominated. They've called her an extremist who will put the government in charge of the financial decisions of average Americans, driving up the cost of credit. But Warren's supporters said Wall Street's true fear was that she would make the agency a success, eliminating the hidden fees and abusive practices that have been so profitable for the industry.

"There are people who try to portray her as an activist or some sort of ideologue. What they are really troubled by is she communicates very well with the American public," said Jay L. Westbrook, a University of Texas law professor who has worked with Warren since the early 1980s. "Her crime here, in the minds of many, is she's a very effective proponent of consumer protection," he said.

Sen. Richard C. Shelby (R-Ala.) said he would not vote for Warren. He called her a "guru" of behavioral economics, which studies how people make financial decisions. Few are criticizing Warren publicly, but others are raising similar concerns and are warning against handing over the agency to someone who believes the government should make financial decisions for consumers. "If an activist is put in charge of this, I think the American people will rue that day," said Sen. Bob Corker (R-Tenn.).

Opponents are laying the groundwork to try to torpedo her possible nomination. The U.S. Chamber of Commerce has prepared a handout with comments by Warren suggesting she believes consumers are incapable of making their own financial decisions. "The worry is she would be too pro-consumer and not be concerned enough about the impact on the health of financial firms," said Jaret Seiberg, a financial policy analyst at institutional investor advisor Washington Research Group. "I think it would be a challenge to get enough Republican support to be able to overcome a filibuster because she is a lightning rod for criticism," he said.

Warren's backers — including congressional Democrats and liberal activists — also are squirming a bit. They're worried that threatened opposition from Wall Street and Senate Republicans will stop Obama from nominating her. Obama, Geithner and other administration officials have praised Warren as a terrific candidate, but they have not said when a nomination will be made. Warren has declined interviews about a possible nomination. "The president has to make it clear on this issue that he is on the side of consumers," said Sen. Bernie Sanders (I-Vt.). "I think Elizabeth is far and away the strongest candidate."

Much of Warren's passion and skill come from her modest upbringing in Oklahoma as the youngest of four children. Her parents experienced the devastation of the Dust Bowl during the Great Depression, she said during a 2007 appearance at UC Berkeley. They valued education — "They used good English, and they didn't say 'ain't,'" she recalled — and knew what it was like to struggle financially. When Warren was 13, her father suffered a heart attack. Her stay-at-home mother had to go to work. Warren's father eventually recovered but ended up with a job that paid half his previous salary.

"We lost the car, and there was more talk about what groceries cost and how expensive winter coats and dental visits had become, but no one went hungry and we stayed in our home," Warren wrote in the 2003 book, "The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke," which she wrote with her daughter, Amelia Warren Tyagi. The book highlighted Warren's extensive research on why people fall into debt. Gathered as part of the Consumer Bankruptcy Project, that data — not ideology — have formed Warren's views, said Kenneth N. Klee, a UCLA law professor who specializes in bankruptcy. "Liz actually goes out and looks for what's really happening," said Klee, who has known Warren since the 1990s.

The book took issue with the common theory that middle-class families were consuming too much, labeling that idea a myth. Data showed, for example, that the average family spent 44% less on appliances and 21% less on clothing than it did a generation earlier. Instead, financial problems stemmed from two-income parents trying to provide better lives for their children, such as through more expensive homes in communities with quality schools, she wrote.

"The Two-Income Trap" spawned a slew of media appearances in which, amid the real estate boom, Warren sounded an alarm about the finances of average Americans. Her work led to an invitation from Rep. Rosa DeLauro (D-Conn.) to speak with about 40 House members at a dinner in early 2005. "She said in my living room, 'We cannot sustain what's going on with housing. It is going to crash,'" DeLauro recalled. "It was prescient."

As the housing market cratered and the deep recession approached in the summer of 2007, Warren proposed a new idea — a financial version of the Consumer Product Safety Commission, which polices household products for defects. "It is impossible to buy a toaster that has a one-in-five chance of bursting into flames and burning down your house," Warren wrote in an article for the journal Democracy. "But it is possible to refinance an existing home with a mortgage that has the same one-in-five chance of putting the family out on the street — and the mortgage won't even carry a disclosure of that fact to the homeowner," she wrote.

Obama used the toaster analogy when he talked about problems with mortgages and credit cards on "The Tonight Show With Jay Leno" in 2009, and he adopted Warren's idea for a consumer agency when he proposed his overhaul of financial regulations. Warren helped pitch the idea with an elevated public profile as head of the Congressional Oversight Panel for the Troubled Asset Relief Program.

Appointed to the TARP panel in late 2008, Warren has led a series of high-profile hearings tracking how much money was doled out and how it was used. Her sharp questioning of industry executives and Treasury officials thrilled liberals who believed the Obama administration wasn't being tough enough on Wall Street. Despite reports that Geithner was not a big fan of Warren because of those hearings, he recently told reporters she was doing a good job. "She represents to a large part of the country — not just people caught up in the damage of the crisis but people who view this system as being fundamentally broken — ... one of the most compelling advocates for reform," he said.

But not to everybody. Rep. Jeb Hensarling (R- Texas), who served on the TARP panel, said Warren focused their work too much on policy recommendations and not enough on tracking the money. He also objected to Warren's decision to keep the panel's internal meetings private. "Is that a harbinger of things to come?" Hensarling said, suggesting Warren could run the powerful new consumer agency with little transparency.

A strong opponent of creating the agency, Hensarling wouldn't comment on whether Warren should run it. He called her "a very smart lady" but said the director shouldn't substitute his or her knowledge for consumers'. "If you've got someone who thinks they're smarter than the rest of us, someone who believes government has all the answers and doesn't believe that people should have basic economic liberties, that people are too stupid to understand basic disclosures," he said, "that frightens me."

But Warren's supporters said she believed consumers could make the right choices — as long as they have understandable information. Klee, the UCLA professor, said financial firms just didn't like the attention Warren had brought to some of their practices. "She has a strong drive for truth and justice," he said. "Along those lines, she doesn't have a lot of sympathy for people who obfuscate things or take advantage of people unfairly."

August starts this weekend, the month three years ago when the first rumblings of worry over Northern Rock emerged, followed weeks later by a full-blown liquidity crisis. A year after that, Wall Street went into spasm, with the largest banks having to be supported by the US government. So this is a suitable time to ask what has changed since then to make the global financial system safer, more wary of excessive risk-taking and less in need of taxpayer bail-outs. The sad answer is: not enough.

This week, the world’s regulators settled on new standards for bank capital and liquidity, rules that were supposed to set an example of global harmony and toughness in the face of banks’ efforts to escape justice. Instead, the Bank for International Settlements diluted earlier proposals and gave banks eight years to comply. It is extremely hard to understand what "mortgage servicing rights" and "deferred tax assets" are, let alone what use they will be to any bank when the next crisis blows up, as it inevitably will. Yet the BIS succumbed to pressure from Germany and France not to be too hard on their banks by allowing both these oddities to count towards core capital.

This dispiriting compromise followed the European stress tests last week, which only seven banks out of 91 failed since the rules were too lax to force most of them into raising new capital. The 2008 consensus on the need for Europe and the US to join forces to tame the financial leviathans has proved a pious aspiration. Banks face some remaining threats: the UK government, for example, has formed a commission under Sir John Vickers (Martin Wolf, the FT economics columnist, is among its members) to mull over whether the big high street banks should be broken up. Vince Cable, the business secretary, supports the idea but has lately been more concerned with pushing banks to lend to small businesses.

Regulatory action over the banks’ past mistakes, misjudgments and deceptions is still under way. David Jones, the former chief financial officer of Northern Rock, was fined £320,000 and barred from working in finance this week, and Citigroup paid $75m to settle Securities and Exchange Commission charges that it failed to disclose information about its sub-prime exposure to investors in the run-up to the 2008 crisis. Bankers have been humiliated by politicians, sometimes in person, and it no longer sounds so good at cocktail parties to say that you work in the City or on Wall Street. Goldman Sachs, the epitome of the elite investment bank, has settled charges over one notorious sub-prime derivatives deal by paying $550m and admitting that it made a "mistake".

By and large, however, as they break for the summer with their bonuses and jobs intact, bankers can reflect that it could have been a great deal worse. Conversely, the rest of us are left to wonder how all that regulatory resolve slipped away. If a camel is a horse designed by a committee, then we ought not to be surprised at the unsatisfactory shape of regulations designed by a global network of committees. The biggest problem in coming up with an effective response to the 2008 financial crisis has been the rival agendas of politicians in different countries (and, in the US, different states).

Much time and energy in Washington was spent, for example, on deflecting a strange proposal by Blanche Lincoln, a Democratic senator from the agricultural state of Arkansas that banks should have to split off their derivatives desks entirely. Germany has, meanwhile, lobbied for strict curbs on hedge funds while protecting the interests of its giant state-owned Landesbanken, some of which took blinder risks than hedge funds. As a result, the reforms are not only inconsistent but – particularly in the case of the BIS – have a lowest common denominator feel. Taken as a whole, they only go a small way towards addressing the two problems made obvious by the 2008 crisis: that global banks are too big and too interconnected to be allowed to fail.

The most disappointing aspect of the reforms is how easily these banks have brushed aside the obvious solution – to break them up into retail and investment banking operations. That would help to curb excessive risk-taking subsidised by retail deposits and taxpayer guarantees – what Martin Taylor, former chief executive of Barclays, calls investment banking divisions’ "parasitic" nature. Paul Volcker, the former chairman of the Federal Reserve, valiantly managed to insert into US financial reforms provisions to ban proprietary trading at large banks and force them to limit exposure to hedge funds and private equity. But the latter aspects were eased in last-minute horse-trading and banks are already finding ways to get around the former.

Absent structural reform, regulators need to find some other way of curbing incentives (conceded by the BIS in a report this week) for banks to keep on getting bigger, more complex and more burdensome to taxpayers. The US is relying on new powers given to regulators to seize and break up institutions that they deem to be in trouble, as well as insisting on banks preparing their own "living wills". Some US politicians have suggested that it ends the "too big to fail" problem but that is naive.

As a result, a lot rides on whether regulators can impose limits through capital, leverage and liquidity rules since Wall Street’s troubles were caused by, among other things, the recklessly high degree of leverage in bank balance sheets. We will only find out in time, but the BIS compromise this week was a bad sign. The bankers who have spent the past year lobbying against reform can go on their holidays with the satisfaction of a job well done. The rest of us cannot relax so easily.

Driven by increasing anger at Democratic policies and by recent Supreme Court decisions unshackling corporate contributions, business and conservative groups are preparing a flood of campaign money to try to wrest control of Congress from the Democrats. The U.S. Chamber of Commerce, the biggest collection point for corporate contributions, has increased its spending for the congressional election in November from $35 million in 2008 to a projected $75 million this year. Officials say it may go even higher.

The chamber has been joined by new conservative fundraising organizations — such as American Crossroads, affiliated with Republican strategist Karl Rove — that have committed to raising tens of millions of dollars. One report circulating among Democratic leaders on Capitol Hill last week estimated that more than $300 million has been budgeted for the campaign by a group of 15 conservative tax-exempt organizations.

"A commitment of $300 million from just 15 organizations is a huge amount, putting them in record territory for groups on the right or left," said Sheila Krumholz, executive director of the nonpartisan Center for Responsive Politics, which tracks campaign contributions. "With control of Congress hanging in the balance, this kind of spending could have a major impact." The money's power is magnified because it will be concentrated in a relatively small number of swing states and districts. Of the 435 House and 37 Senate seats at issue in November, about 100 House seats and 18 in the Senate are considered competitive.

The conservative fundraising commitment has stunned Democrats. "It's raising the alarm bell," said Rep. Chris Van Hollen (D-Md.), chairman of the Democratic Congressional Campaign Committee, which spent $177 million in all of 2008 for congressional races. Labor unions and allied liberal groups also plan to spend heavily. The Service Employees International Union, for example, has budgeted $44 million on election-related spending this year. But the momentum and the new money appear — at least at this moment — to be coming from business and its allies.

"What we are seeing is that major businesses and industries are taking advantage of the recent court ruling and favorable political environment," said Anthony J. Corrado Jr., a political scientist at Colby College in Maine and a leading expert on money and politics. "They are already committing substantially more money than they have in any previous election cycles." Two recent Supreme Court decisions have encouraged corporate and union participation in political advertising campaigns. This year, the court decided in Citizens United vs. Federal Election Commission that corporations and unions could spend directly on elections, overturning a century of laws limiting such spending.

Chamber of Commerce officials say a more significant ruling was the 2007 decision in Federal Election Commission vs. Wisconsin Right to Life that lifted the ban on political issue advertising close to an election, allowing corporations and unions to spend unlimited sums on these ads at the last minute. The rulings have given all sides powerful tools to influence the outcome of elections.

Business leaders see high stakes in the midterm election. They were concerned about the sweeping healthcare overhaul passed this year and a far-reaching bill passed last month to establish greater federal monitoring and regulation of the financial system. Energy firms are particularly concerned about how Democratic-dominated Washington will regulate their businesses after the oil spill in the Gulf of Mexico.

Scott Talbott of the Financial Services Roundtable, a trade group for major financial firms, said banks and investment houses were participating in fundraising and lobbying at an unprecedented pace, partly because of concern over thousands of pages of new regulations that will be written to implement the laws, as well as who will be picked to head new government entities, such as the consumer protection agency for banking and securities. President Obama's sagging approval ratings, which have dropped to 44% in some polls, have created an opportunity that could allow Republicans to gain control of the House and cut into the Democrats' majority in the Senate.

Valerie Jarrett, White House liaison to business, said many of the chief executives she talked with appreciated the administration's economic policies and the chance to participate in developing new regulatory ground rules. The threatening rhetoric from the Chamber of Commerce and like-minded groups is nothing unusual, she said. "Special-interest groups have always been able to raise a lot of money in Washington, but the last presidential campaign demonstrated that regular, everyday Americans can participate as well — and they will when they believe there is a candidate looking out for their interests," she said.

Democrats as well as Republicans point out that the political spending by business is still largely speculative and that in some early primaries, labor outspent business. But current indications are that spending for the midterm election will break all records. Campaign advertising has already soared to $153 million, almost twice the $77 million spent at this point in the last midterm election in 2006, said Evan Tracey of the research firm Campaign Media Analysis Group. Efforts to bring greater transparency to political ad campaigns by requiring disclosure of donors were blocked in the Senate last week by Republicans, after heavy lobbying by the Chamber of Commerce.

Conservatives have found plenty of fertile ground for fundraising. Roger Nicholson, a senior vice president of International Coal Group, a mining company, wrote fellow executives Tuesday, urging them to raise money to deal with the "fiercely anti-coal" Democrats who rule Washington. Specifically, he called for funds to defeat Democratic candidates, including Kentucky's Jack Conway, who is running for the Senate, and incumbent Rep. Nick J. Rahall II of West Virginia, chairman of the House Natural Resources Committee.

Similarly, the Center for Public Integrity reported last week that five of the nation's largest health insurers, including Aetna Inc., Cigna Corp. and United HealthCare Inc., have been discussing bankrolling a new nonprofit group with about $20 million to influence tight congressional races and boost the industry's image. The head of the insurers' Washington trade association, Karen Ignagni, declined to comment on the report. The Chamber of Commerce has focused its efforts on 10 Senate races and about 40 contests in the House.

The chamber has spent more than $1 million over the last four weeks on two Senate races — between Democrat Joe Sestak and Republican Pat Toomey in Pennsylvania, and Democrat Lee Fisher and Republican Rob Portman in Ohio. It has never invested so much in a campaign so early. Plans call for more. In early August, the chamber is expected to throw its weight behind Republican Carly Fiorina in her bid to defeat Democratic Sen. Barbara Boxer in California, adding more fuel to a race that may be one of the most expensive ever. Already the two candidates have raised $30 million.

Timothy McCollough freely admits that he stopped making payments on his Chase Manhattan credit card in 1999. He says he did not have the means to pay after he was disabled by a head injury that cost him his job as a school security guard. But more than a decade later, Mr. McCollough, who is 52 and lives in Laurel, Mont., is still haunted by the unpaid balance, which was originally about $3,000.

In 2007, he was sued a second time over the debt, and this time the suit contended that he owed significantly more: $3,816 in credit card debt, plus $5,536 in interest and $481 in legal fees. As he did the first time, Mr. McCollough sent a handwritten note to the court explaining that the statute of limitations on the debt had passed. "I have had no dealing with any credit card in 8 1/2 years," he wrote to the court. "The pain they caused is worth more than the money they want."

Mr. McCollough is not the only borrower being pursued for a balance that has expired. Such claims are routinely sold on debt collection Web sites, where out-of-statute debt is for sale for a penny or less on the dollar. In most states, it is legal for collectors to pursue out-of-statute debt, as long as they do not file a lawsuit or threaten to do so. But some lawsuits are filed anyway, and consumer groups and even some industry consultants argue that collectors routinely harass debtors for unpaid balances that have exceeded the statute of limitations. In some cases, collectors have unlawfully added fees and interest.

"It’s so cheap, if you can work it smart, you don’t need to collect that much," said John Pratt, a consultant to the debt-buying industry and an author of "Debt Purchasing: An Investor’s Guide to Buying Debt" (Morris Publishing, 2005). He said investors in old debt generally hoped to recoup two and half times what they paid for a group of claims. Because collectors cannot sue on old debt, he said, they are more likely to resort to abusive tactics. "Time-barred debt is where the worst abuse has occurred towards the debtor," he said.

In a report issued July 12, the Federal Trade Commission called for "significant reforms" in the debt collection industry and recommended that states change the murky laws that govern out-of-statute debt. The statute of limitations for debt varies by state, generally from three to 10 years. In many states, collectors can restart the clock if they can persuade the consumer to make even a tiny payment toward the old debt. Debt collectors generally do not tell consumers that making a payment will revive the debt so it can be legally pursued. "The point of the payments is not so much to get the money" as it is to restart the clock, said Daniel Schlanger, a New York lawyer who represents consumers in cases against debt collectors.

The F.T.C., in its report, recommends that states make sure the statute of limitations for outstanding debt is clear and that collectors filing a lawsuit be required to prove that the debt is not out of statute. In addition, the agency recommends that states require collectors to tell consumers that they are not entitled to sue on out-of-statute debt and that making a partial payment revives the entire liability. Rozanne Andersen, chief executive of ACA International, an association of debt collection companies, said she did not believe that old consumer debt should expire at all. The money is owed whether the debt is a month old or 10 years old, she said.

Ms. Andersen says her association opposes filing lawsuits against out-of-statute debt or using trickery to get consumers to pay. But she says she sees nothing wrong with debt collectors pursuing legitimate debts, even if that might spur the borrower to restart the statute of limitations. In addition, she said it was ridiculous to expect debt collectors to warn consumers that their debts had expired. "It suggests that if a consumer can avoid paying for a certain period of time, they will enjoy a windfall," she said, adding later, "People are obligated to pay their debts, whether the statute of limitations period has run or not."

The debt collection industry has undergone a transformation in the last decade. Credit card issuers, health care providers and cellphone companies now routinely sell debt that they deem uncollectible to debt buyers, who then either try to collect it themselves, turn it over to a collections law firm or sell it again. The price of secondhand debt depends on factors like the age of the debt, average balance, how much documentation is available to prove the debt and where the debtors are located.

Out-of-statute debt is readily available on various Web sites that cater to the collections industry. For instance, a Chaska, Minn., company called Credit Card Reseller is offering an $8 million portfolio of Bank of America credit card accounts, which on average have a balance of $4,981 and were written off by the bank in 2003. The expected asking price is $16,000, or two-tenths of a cent for every dollar owed. While collectors are not supposed to file lawsuits to pursue out-of-statute debt, some consumer lawyers say it happens routinely. In California, for instance, Victoria Byers of Los Angeles was sued last year for $1,708 over an old AT&T cellphone bill that she disputed. Her last payment was made in 2005.

Last month, Ms. Byers, who is 50, filed her own suit contending that the debt collector, Professional Collection Consultants, and its lawyer, Scott Wu, violated the Fair Debt Collection Practices Act. Her suit asserts that the collection firm and Mr. Wu routinely file lawsuits on stale debt in the hopes of obtaining default judgments. Ms. Byers’s lawyer, Michael Stone, said he based the accusation on the high volume of lawsuits filed by Mr. Wu and on the "reckless" manner in which they treated Ms. Byers.

Clark Garen, a lawyer for Professional Collection Consultants, denied that his firm purposely set out to collect expired debt. As a result of the accusations in the Byers lawsuit, he said the firm reviewed its record of filing lawsuits and found a small number of instances in which lawsuits were filed against debt in which the statute of limitations had expired. Of the 11,946 lawsuits that it filed over the last four years in California, 73 involved debt in which the statute of limitation had expired, Mr. Garen said. Professional Collection Consultants is dropping the lawsuits in which a judgment has not been entered and refunding $44,710.82 to consumers in 29 of the cases in which some money was collected, he said.

Mr. McCollough, the man who was pursued for his old Chase credit card debt, also ended up countersuing the collection law firm that sued him, Johnson Rodenburg & Lauinger of Bismarck, N.D. Last year, a Montana jury awarded him $311,000 in damages, primarily for emotional distress. The decision is being appealed. Fred Simpson, a Missoula, Mont., lawyer representing Johnson Rodenburg, declined to comment and pointed instead to his appellate brief, in which cites an "accumulation of errors" by the district court. In his closing arguments at the trial, Mr. Simpson pointed out that Mr. McCollough still owed the balance on his Chase card. "The money was green and he spent it," Mr. Simpson said. "If Mr. McCollough paid his credit card bill to Chase Manhattan, we wouldn’t be here this morning."

It turns out that countries have two economies: the official one and a shadow version. The official economy is the one that governments and banking institutions measure with gross domestic product, tax receipts, social security contributions, employment identification numbers, and the like. The shadow economy is all the money and jobs generated outside the official economy, whether legally or illegally. In more than 50 countries around the world, the shadow economy is at least 40 percent the size of documented GDP.

In percentage terms, the biggest shadow economy relative to official economic activity is in the former Soviet republic of Georgia. In 2007, the last year for which data were available, revenue from all Georgia's goods and services generated off the books amounted to 72.5 percent of official GDP. In other words, the government is losing out on billions of taxable dollars it could use to improve the national infrastructure, service debt, build schools and roads, even hire better tax collectors . At the other end of the scale, the U.S. shadow economy equaled only 9 percent of the country's official economy. Given U.S. GDP of $14.26 trillion, the world's largest, that could still be as much as $1.2 trillion in taxes that slip through Uncle Sam's fingers each year.

The size of a shadow economy can be vitally important. As became painfully clear during the Greek economic crisis, one of the factors that nearly drove the country into bankruptcy was that Greek workers and companies skirted more than 31 billion euros in taxes, which is more than 10 percent of GDP. In an updated report, Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007, Greece comes across as a model of fiscal responsibility when compared with dozens of other nations. In the report's ranking from least to most shadowy, Greece is No. 57, with a shadow economy equal to 31 percent of GDP in 2007.

Nailing down shadowy numbers is difficult, of course. According to Friedrich Schneider, an economics professor at Austria's Johannes Kepler University of Linz who co-authored the study, the margin of error baked into the results is about 15 percent. Therefore, while the report says Georgia's shadow GDP in 2007 was 72.5 percent, that number could be less—or even more. What we do know is that Georgia's official GDP, according to the CIA's World Factbook, is approximately $20.3 billion, but if the shadow economy were added, it could potentially be as much as $30 billion or so.

Schneider points out that for the purposes of his study, he and his colleagues, Andreas Buehn of Technische Univerität Dresden, and Claudio E. Montenegro of the World Bank and the Universidad de Chile, excluded what they call "typical underground, classical economic crime activities," such as burglary and drug-dealing. They also did not focus on tax evasion. What they did focus on was what "all market-based legal production of goods and services that are deliberately concealed from public authorities" to avoid payment of taxes, social security obligations, and labor laws. That means basically small and large businesses, doctors, contractors, nannies, grocers, and others from a broad swathe of the economy who choose not to report income and transactions.

One notable finding is that from 1999 to 2007, shadow economies appear to be on the rise in nearly every country the study ranked. For example, America's shadow economy in 1999 was 8.6 percent and climbed to 9.0 percent in 2007. (The number was higher for developing countries, where shadow economies increased from an average of 36.6 percent in 1999 to 38.6 percent in 2007, as opposed to an increase of 16.8 percent to 18.7 percent for the 25 high-income OECD countries.) The reason behind the rising numbers? "Taxation and regulation increased in most countries" over the past 10 years, says Schneider. As he writes in his report: "reducing the tax burden is the best policy measure to reduce the shadow economy, followed by a lessening of fiscal and business regulation."

When The Shadow Is RealBut for many developing nations like Peru, the huge shadow economy results from growing urbanization and more commerce, says Daniel Córdova, dean of the graduate school at Universidad del Pacífico and director of the Invertir Institute, an NGO that promotes entrepreneurship. "What you call the shadow economy is the real economy" in Peru and other countries in Latin America, says Córdova. In the study, Peru has the fourth-largest shadow economy.

Many Peruvians do not have social security numbers and are not on a formal payroll, says Córdova. With a labor-intensive bureaucracy, it can be difficult to start a formal business. In Peru, the poor population's assets amount to $90 billion, according to the website of the Instituto Libertad y Democracia, a think tank in Lima.

What is clear is that regardless of what taxpayers believe, the countries with the most efficient tax collection and enforcement systems are the ones that tend to have the smallest shadow economies. Schneider goes even further. He and his co-authors suggest that the solution is not just more efficient tax collecting and lighter regulation, but also to find a way to make work in the official economy more attractive and reduce the incentives to participate in the shadow world. At a time when official economies around the globe are dealing with high unemployment, it might be some time before shadow economies lose their appeal.

The world knows BP is a disaster, a monster of a disaster. BP's disaster makes Hurricane Katrina look like a rain shower. Every time a TV news station shows oil gushing from a broken pipe -- one mile below the ocean's surface -- the world gets sick. Scenes of oil-soaked pelicans struggling for life both angers and saddens us. The financial losses endured by small businesses and fishermen cannot be imagined, let alone conveyed by the media interviews. BP is a disaster with a scope beyond comprehension.

I was in England when President Barack Obama blamed and criticized BP for this tragedy. His criticism sparked the anger of the British. Politicians wanted him to tone it down, to be more careful in his choice of words. British Prime Minister David Cameron told Obama not to "go after BP for the sake of it." Virgin's Richard Branson said he was "kicking a company while it was on its knees." Their concern was not for the environment or those suffering the ravages of this disaster. Their concern was for the pensioners who are counting on BP for a secure retirement.

On June 17, London's Daily Mail ran a headline screaming, "Obama Bullies BP into £13.5bn Fund for Oil Spill Victims... but British Pensioners will Pick Up the Bill." The British are angry with Obama for pressuring BP to suspend dividend payments and set aside $20 billion for the cleanup. Obama's strong-arm position has not only affected British pensioners, who own 40% of BP, but American pension funds, who own 39%, as well. In other words, the economic damage of the BP disaster goes far beyond the Gulf. The damage is spreading to pensions, pensioners, and portfolios all around the world.

An Atmosphere ChangedWhile in London, I decided to go to dinner at Canary Wharf, ground zero for the next BP. Only a few years ago, Canary Wharf was one of the centers of the financial universe. Condo prices were sky high, offices were packed, and high-paid bankers filled Canary Wharf with wealth and excitement. Today, Canary Wharf seems to be dying. It has lost its vibrancy. Many restaurants and offices were nearly empty and there were few lights to be seen in those once-high-priced condos.

And Canary Wharf's ‘BP' stands for Bomb Production. Canary Wharf is much like AIG, a factory for exotic financial products known as derivatives. The problem is that most people do not know what these murky and mysterious products are -- and that includes the people who make them or buy them. It's why Warren Buffett has called derivatives "financial weapons of mass destruction." That is how powerful they are. During World War II, a ship exploded while loading bombs for transport at Port Chicago, California. The explosion flattened everything for miles. It is said that the ship's anchor, which weighed tons, was found more than six miles away. Derivatives -- financial bombs -- have the same power if they accidently detonate inside a bank's balance sheet.

The subprime disaster was a result of financial bombs -- derivatives -- exploding in financial institutions such as AIG and Lehman Brothers, as well as banks and financial institutions throughout the world. After the bombs AIG manufactured exploded, AIG received $181 billion in taxpayer funding and immediately sent $11.9 billion to France's Société Générale, $11.8 billion to Deutsche Bank, and $8.5 billion to Barclays Bank of Britain. U.S. taxpayer money was going to bailout banks around the world. During the last three months of 2008, AIG was losing more than $27 million an hour. That is how powerful these derivatives can be. The problem I see is this: There are many more such bombs still sitting in balance sheets all over the world.

Financial Bombs All Over the World Military bombs are classified by weight: 500-, 750-, and 1,000-pound bombs. Financial bombs have interesting labels such as CDO (collateralized debt obligations), ABS (asset backed securities), and CDS (credit default swaps). While they sound exotic and sophisticated, when put in everyday language, a CDO is simply debt sold as an asset. And CDS, or swaps, are simply a form of insurance.Since the insurance industry is strictly regulated, and the bomb factories producing CDS did not want to comply with insurance industry regulations, they simply called them ‘swaps,' rather than insurance.

To make matters worse, rating agencies such as Moody's and S&P (and even Fed Chairman Alan Greenspan) blessed these financial bombs as safe, sound, and good for you. It was almost as good as the pope blessing these products. In 2007, the subprime boom busted, and we know what happened from there. The problem is that approximately $700 trillion of these financial time bombs are still in the system. While people watch the BP disaster in the Gulf, few people are aware of the other BP, the financial bomb production that is still going on. If this derivative market begins to collapse, we will see another BP disaster.

Can't Clean Up the Next DisasterMost of us know there is not enough money in the world to clean up the Gulf. The same is true with the $700 trillion derivatives market. If just 1% of the $700 trillion derivatives market goes bust, that is a $7 trillion disaster. The entire U.S. economy is only $14 trillion annually. A 10% failure, equating to $70 trillion, would probably bring down the world economy. As with the BP Gulf disaster, there is not enough money in the world to clean up the next BP disaster.

Could such a financial disaster happen? The answer is "Yes." In fact, just as President Obama pressured BP into doing the "right thing," he is also pressuring the financial markets to do the right thing. The president and our congressional leaders are pushing through financial reform legislation. My concern is that, if not handled delicately, it is this financial reform that will set off the derivative time bomb... the next BP.

Currently, derivatives are traded over-the-counter, also known as off-exchange trading. This means derivatives are uncontrolled, unregulated, and unsupervised. The proposed financial reform legislation is pushing to have derivatives traded through an exchange. This will bring greater transparency and control. My concern is, when this happens, the reform will reveal fraud and failures we do not yet know about today. It will be like turning on the light and watching the cockroaches (bankers) run for cover. While it is commendable that President Obama holds the rich and powerful accountable, I wonder what the price will be. How many BPs can we afford?

Like to buy a nice new airport? No? How about a railway network or a power station? Well then, wouldn't you like to have a bus company, or a harbor, or a television service or a chain of post offices? Anyone of these properties could be yours; all reasonable offers considered. They are slated to come under the auctioneer’s hammer in a fire sale of national assets in Ireland. Like a household up to its ears in debt, the Irish government is planning to sell off the family silver to make ends meet.

Minister for Finance Brian Lenihan appointed a commission on July 22 to look at the possibility of unloading these assets to help meet Ireland’s crippling national debt of 84 billion euros ($108 billion). The planned sale is an indication of how desperate the financial situation has become since the Irish property bubble burst three years ago. A nation listed the as the sixth richest non-oil country in the world by Standard & Poor has seen a sharp decline in wealth and economic activity. Tax revenues have collapsed and the government is struggling to keep its controversial pledge of two years ago to bail out the country’s banks, which are floundering under the weight of reckless loans.

This has created a black hole into which tens of billions of euros are disappearing. The worst offender, Anglo Irish bank, is in the process of transferring loans with a nominal value of 35.6 billion euros ($45.5 billion) to Ireland’s "bad bank," the National Asset Management Agency, known as "Nama." Irish Property developers — until recently members of the world’s rich set — are now saddled with immense debts, such as Dublin-based Paddy Kelly who was worth 350 million euros ($455 million) in 2007 and now owes 350 million euros.

Sean Fitzpatrick, the former chairman of Anglo Irish and a poster boy for the excess of the Celtic Tiger era, was declared bankrupt last month owing 150 million euros ($195 million), a rare event in Irish economic life. Ireland emerged from recession in the first quarter of this year, helped by profitable multinationals, but it is a jobless recovery and little new wealth is being created. Banks are tight-fisted, unemployment is rising and emigration is increasing. A ruthless government is slashing public spending and state salaries while raising taxes to prove its credit worthiness to the financial world.

There are even proposals before the government to impose tolls on country roads rather than just motorways, such is the desperation to squeeze more euros from dwindling personal incomes. U.S. economist Paul Krugman, writing in his New York Times blog last week under the heading "Leprechauns and confidence fairies," maintains that this is a mistake, and that the Irish government "should do all they can to avoid prolonging the slump even further, that austerity may be self-defeating."

But Cliff Taylor, editor of the Irish financial newspaper The Sunday Business Post, responded: "If the government did pump money into the economy it would lift things a bit, no doubt, the more pressing problem is that we haven’t got any money to pump in." Which comes back to the plan to sell off state assets to raise cash. The full list of properties targeted by the new Review Group on National Assets, chaired by "slash and burn" economist Colm McCarthy, has been published on the finance department’s website.

It includes 28 semi-state bodies, commercial enterprises owned outright or controlled through majority shareholding by the Irish government. Some are national icons, like RTE, the state radio and television station. Others are more mundane concerns like Dublin’s unionized bus service. There will be a furious political and popular response when the "for sale" signs go up. A Sunday Tribune investigation of previous government sell-offs shows that more than 8,000 workers were made redundant once their companies fell into private hands.

Economist Jim Power pointed out that "given the massive failures in the private sector, particularly in the banks, it cannot be taken for granted that the private sector will do any better." Irish people remember the debacle over the 1998 sale of the national telephone company, Eircom. Tens of thousands of citizens who — on the urging of the government — took out shares lost out as the stock market value fell. Moreover, the number of employees dropped from 11,000 to 6,000, its nationwide broadband rollout was patchy, many of its assets were stripped and it now has debts of 3 billion euros ($3.9 billion).

A disincentive for prospective international buyers is that some semi-state bodies, relics of a pre-modern Ireland, with guaranteed employment and pension plans, are heavily in debt. Dublin Airport Authority which has borrowings of over 1 billion euros ($1.3 billion). Apart from assets such as the Electricity Supply Board, worth an estimated 7 billion euros ($9.1 billion), rich pickings from among the family treasures are actually quite slim. The problem with a national fire sale of Irish assets is not so much what it might raise, or even whether it is a good idea, but whether anyone will turn up.

HSBC is plunging headlong into Russian equities as it makes the world's biggest bet on the rising middle classes of Asia, Latin America, and the commodity bloc. "Russia is our favourite," said Nick Timberlake, HSBC's emerging markets chief. "We're being offered a huge opportunity. It is not quite as good as it was after Russia's debt default in 1998, but it's excellent value."

The bank is the top global investor in the BRIC quartet of Brazil, Russia, India, and China, with $90bn of assets in emerging markets. It has raised the Russia weighting of its BRIC funds to over 30pc. India has slipped to 20pc. "There has always been a discount on Russian equities because of political risk, but this widened too far," said Edward Conroy, co-head of the bank's Russia Fund. Moscow's bourse is leveraged to the global cycle. It plunged 73pc in the credit crisis, but should rebound like a coiled spring as confidence revives.

Moscow stocks are trading at a forward price/earnings ratio of 5, compared to Turkey (7.2), Poland (9.6), China (10), and India (11.7). "Russia is unloved and undervalued. We think valuations will revert. It is more than just a commodity play," he said. Russia has the luxury of a clean balance sheet. Sovereign debt is 11pc of GDP. Mortgage debt is under 4pc. Such restraint has become a trump card in a post-bubble world where sovereign states are suspect. The Kremlin can borrow to rebuild Russia's crumbling Soviet infrastructure, so long as OPEC stops the price of oil falling far.

HSBC is targeting consumer equities as rising pensions and the Medvedev welfare net unleash pent-up demand, rather than the energy shares that dominate Moscow's exchange. Among the fund's top picks are Magnit, the number two grocery chain with branches in southern Russia and the Volga, a play on 20pc annual growth in food retailing. It also likes food processor Cherkizovo, a catch-up play on meat consumption – now 62 kilos per capita (below Soviet levels of 78, the EU at 79, or the US at 117). "Cherkizovo has a return on equity of 20pc: that discount that is too big to justify," said Mr Conroy.

Russian companies were hit hard by the global crisis because the lack of domestic bond market forced them to borrow abroad. Funding froze suddenly. Russia has learned the lesson. Home-grown bonds are driving recovery. Yet critics remain wary. State spending has grown so fast that it now takes $90 oil to keep the budget in balance. The Reserve Fund has been raided, falling from $100bn to $30bn. The population will contract from 142m to 127m by 2050, according to the US Population Bureau.

India is a polar opposite: iffy in the short-run, irresistible in the long-run. Sanjiv Duggal, head of HSBC's India Fund, said the country is near the "inflexion point" where per capita income (PPP) hits $3,000 a year, leading to a step-change in consumption growth. "The next ten years will take India to where China is today. It is a decade behind." Bombay's bourse is the most costly of the BRICs on a P/E basis, but Mr Duggal said real estate is "under-owned" given that the ratio of house prices to incomes is near a modern low of 4.7. Maruti Suzuki is a way to gain exposure to the middle class blast-off story, claiming half India's car market and 20pc sales growth; so is United Spirits, overtaking Diageo as the world's top drinks producer by volume.

India weathered the credit crisis well thanks to a closed economy and a tough bank rules that impose a 30pc reserve ratio. Yet policy settings are now ultra-loose, with real interest rates of -5pc, a state and federal budget deficit above 10pc GDP (with subsidies), and a public debt at Western levels of 80pc. This scores badly in the BRIC beauty contest. Meanwhile, the jury is out on whether China can manage a soft-landing using credit curbs after letting rip with $2.1 trillion of lending over the last 18 months. Optimists say Shanghai's bourse has already purged excess, falling 55pc since late 2007.

Mr Timberlake said Beijing's control over the banks gives it the tools to prevent the slowdown going too far. "They have taken their foot off the brake over the last few weeks," he said. He sees vast potential for a further leap forward as 1pc of the population – twice London – moves from country to city each year, shifting up the income ladder. "There are 400 cars per thousand in the West, and 28 per thousand in China. This is a huge structural story," he said.

The catch-up sectors are health-care, travel, cosmetics, insurance, and luxuries like chocolate. China already has 450,000 dollar millionaires. Chinese have bought more Mercedes this year than Americans. As usual, the US will lead events. The BRICS are strong enough these days to decouple if the US slowdown is just a soft patch: they will recouple fast if America stalls.

Special financing companies in China have borrowed almost $2 trillion. Concerns are rising about their ability to pay it all back.

Victor Shih is a professor of political science at Northwestern University who spends his days scouring the Chinese Internet, looking for signs of financial trouble. Shih explores obscure Chinese government sites for announcements of loan agreements between China's state-owned banks and local investment companies (LICs). These companies borrow on behalf of local governments whose own ability to borrow is legally limited. Officially, there are more than 8,000 LICs. Beijing encouraged their development over the past two years as a way to disseminate funds quickly to projects.

Now, Shih is worried that the LICs have borrowed more than they can pay back. Chinese officials share his concern. "The soundness of the banking sector is being tested," Liu Mingkang, the top bank regulator, warned in June. He cited lending to "local government financing platforms"—or the LICs—as one of the big risks the banks face. Many of the LICs have borrowed heavily to back the building of roads, railroads, and power plants, as well as hotels, convention centers, office buildings, and more. While some LICs have gotten land from local governments that they can use as collateral, many banks must rely on pledges from local city halls that the loans the LICs secured will be repaid.

Shih figures outstanding LIC debt at the end of 2009 was $1.68 trillion—34 percent of China's gross domestic product. "A lot of this money is being invested in money-losing infrastructure projects [as well as] real estate," says Shih. Western investment firms are wondering what impact the LICs will have on Chinese banks if they cannot pay back the bulk of their debts. "Unfortunately, this smells like China's last banking crisis," says Shen Minggao, an Asia-Pacific economic analyst with Citigroup.

Figuring out what projects the LICs have financed and how healthy they are is hard. Shih says LICs in the western city of Yinchuan, the capital of Ningxia autonomous region, have helped bankroll a building spree. New luxury villas and high-rise residential complexes, as well as a huge new soccer stadium, adorn the city. A science and technology center, a museum, and a library each occupy several football fields' worth of turf, while an almost-finished skyscraper resembles New York's Empire State Building. It's pretty ambitious for a region that depends on cash transfers from Beijing for 70 percent of its total revenues.

Shih estimates Ningxia's debt at $15 billion—75 percent of the region's economy. "A soccer stadium in the middle of nowhere is not going to generate much cash flow," he says. "Without massive central government subsidies, I think many of these projects will not generate enough cash even to pay interest on their loans." Local officials say there's no problem, and that a healthy mix of bank funds, corporate bonds, grants from Beijing, and investment from state enterprises has pumped billions into Ningxia. "This shows how much importance the central government places on developing the west, and Ningxia benefits from that," says Shao Xiaowen, an official from the local development and reform commission.

In June, China's State Council ordered local governments to guarantee that their investment vehicles were able to repay their debts. The localities were also told to finish projects under way before starting new ones. "The biggest concern is that harsh implementation of these new rules would leave many [local governments] with half-finished projects and no prospect of servicing their debts," wrote Mark Williams, senior China economist at Capital Economics, a London consultancy, in a July 8 report.

Beijing could also opt to ignore its own edicts and stick with easy lending. In early July central government officials said they would continue the Develop the West program for 10 more years and budgeted $101 billion for 2010 alone. China is loath to tap the breaks too suddenly, particularly in the west, home to migrant workers, peasants, and restive minorities. Risk a bank crisis by lending too freely? Or court recession and upheaval by cutting off the funds? It's a hard choice.

The total sum of China's regional GDP figures in the first half of this year was about 1.5 trillion yuan ($220 billion) more than the national figure released by the National Bureau of Statistics (NBS), a strong indication that there is false reporting by regional governments, according to analysts, officials and media reports. By Saturday, 29 of all the 31 provinces, municipalities and autonomous regions on the mainland had issued local GDP figures and GDP growth rates for the first six months of this year, with the exception of Shanghai and Guizhou province.

However, had Shanghai and Guizhou kept their GDP figures for 2009, the sum of their local GDP would surely have reached 18.8 trillion yuan, 1.5 trillion yuan more than the national GDP figure of 17.3 trillion yuan released by the NBS on July 15, the Beijing-based Mirror Evening News reported over the weekend. Meanwhile, according to the local figures, GDP growth in 28 provinces, municipalities and autonomous regions remained higher than national GDP growth, which is 11.1 percent, the report said.

Reports of mushrooming local GDP figures have long been nettlesome. In the first half of 2009, for instance, the sum of provincial GDP figures stood at 1.4 trillion yuan - more than the national figure, calculated by the NBS independently. At the same time, nearly half of provincial governments reported double-digit GDP growth, whereas the national growth figure was only 7.1 percent.

The current GDP calculation mechanism asks local governments to calculate their own GDP before reporting it to the NBS for verification. For years, however, the sum of local GDP figures remained highly inconsistent with national figures. Experts believe local government officials have long been deliberately inflating their own GDP figures in an effort to prove their strong stewardship of their economies.

Liu Yuanchun, a senior economist at the school of economics at Renmin University of China, said this phenomenon has been the inevitable result of a current political assessment mechanism - one which still depends greatly on local GDP performance to judge officials' ability. In addition, reliable numbers can be acquired only if local statistical departments are totally independent, he said. "If the statistical departments are under the management of local city or provincial government, how to guarantee the statistics are objective?" he said. Beyond this, differences in accounting and standards adopted by national and local statistics departments are also to blame for these statistical inconsistencies, experts say.

The transaction volume of previously owned residential homes in Beijing plunged 56.77 percent year-on-year to 8,714 units in the period between July 1 and July 27, reports Securities Times, citing data from Centaline Beijing. The average daily transaction volume of previously owned residential homes hit a year low during this period. The average daily transaction volume of previously owned residential homes hovered at 400 units in January and February, while in March and April, the volume jumped to 1,096 units.

Following the introduction of new real estate policies, the average daily transaction volume of previously owned residential homes dropped to 323 units in June and July According to Centaline Beijing, the decline in the transaction volume was due to the different expectations of property owners and home buyers in regards to the direction of prices of previously owned residential homes. Centaline predicts that the transaction volume of previously-owned homes would recover as home prices decline in the long term.

In theory, Italy, with its huge public debt, should be one of the euro zone's problem children. In reality, the country has come through the current crisis relatively unscathed. Can the rest of Europe learn something from its southern neighbor?

Maria Cannata can't think of a job that would be more exhausting than hers. She has been la signora del debito, Italy's "debt lady," for almost 10 years. During that time, she has done an outstanding job. Cannata leans back, relaxed, in a black leather chair. On the walls of her office in the Finance Ministry in Rome hang family photos and promissory notes from the year 1850. Cannata manages the liabilities of the second largest debtor among the world's industrialized countries and ensures that Italy remains solvent. An unpretentious woman, Cannata, 56, sports a practical hairstyle and no makeup. She says that she sleeps well at night -- she's known worse times.

Italy's public debt is over €1.76 trillion ($2.27 trillion), or 115.8 percent of its gross domestic product, making it Europe's leading debtor. By comparison, the average public debt of the euro-zone countries comes to 78.7 percent of GDP. Along with Portugal, Ireland, Greece and Spain, Italy is one of the unfortunately named PIIGS countries -- the axis of mismanagement, if you will. It's an appalling performance for a state that belongs to the exclusive G-8 club of the world's seven leading industrialized nations and Russia. Rating agencies put Italy on par with such shaky countries as Ireland, Malta and Portugal. Does Italy pose a threat for all of Europe?

Trusting in ItalyCannata is familiar with the rumors. The bottom line is numbers, though, not words -- and how much interest Italy will ultimately have to pay on its debts. Every percentage point reflects a degree of trust, and every 10th of a percent less is a personal triumph for her. When Cannata had to restructure billions in debts again last April -- €9.5 billion to be exact -- for a long time it looked as if there weren't enough buyers for the new government bonds.

Some experts advised her to float fewer bonds on the market, to avoid driving down prices. But Cannata stuck to her course and, in the end, got what she wanted. She often negotiates better conditions than Spain, which doesn't have nearly as much government debt. Is this an extraordinary ability? Gambling against the trend? Or just a cheap trick? Why, in the midst of the financial crisis, should anyone believe in this country, whose government debt can be partly attributed to Roman nepotism and corruption?

Ongoing CrisisPrime Minister Silvio Berlusconi, 73, is politically weaker than at any other time since his re-election two years ago. For weeks now, his government coalition has appeared paralyzed, bitterly wrangling over a wiretapping law that Berlusconi wants to push through before the summer break, and mired in one bribery and justice scandal after the other. Two ministers have had to retire since May, and now, of all people, Economy Ministry undersecretary Nicola Cosentino has also had to step down amid allegations of mafia contacts and founding a secret society.

When Berlusconi received the "Grande Milano" award last week in Milan for his life's work, he was praised as a "statesman with rare abilities who leads his country with a clear conscience into the future." In reality, however, Berlusconi's political days are numbered. The struggle over his succession is already underway. Cannata doesn't talk about politics -- she's not allowed to. She says that Italy has been plagued by an ongoing crisis for the past 20 years -- that's how long the country has been teetering on the edge of bankruptcy.

In 1994, its debt peaked at 121.8 percent of GDP. There was already a lot of talk of action back then -- even though there was no global financial crisis at the time -- but that didn't have much of an impact on the amount of debt amassed by the country. Italy continued along the same path. Ironically, the country's state of permanent crisis has perhaps had the effect of staving off the worst during the current crisis. It doesn't have to weather a burst real estate bubble or a construction crisis. Italy didn't have to bail out any banks, either. The government already had its hands full with its own debts.

Avoiding Others' MistakesWhile in Spain and Ireland a debt-financed construction boom and dubious deals by investment bankers were generating high growth rates, Italy was busy tinkering with its high government debt. "A more highly regulated banking system offered fewer opportunities to copy the mistakes made by other EU countries," says Alexander Kockerbeck, an analyst at the US rating agency Moody's. Italy hasn't engaged in the excesses of the past few years. Italy is suddenly seen as the country that has shown its mettle in the crisis by taking the toughest stance, as an expert in debt management.

No country in Europe has been forced to tighten its belt as brutally as Italy. Cannata's boss, Finance Minister Giulio Tremonti, has just enacted draconian cost-cutting measures for his country. He did so against the will of Berlusconi, who has been scoffing at the crisis for months -- even promising tax cuts and maintaining that Italy is the richest country in the EU.

The austerity measures aim to save nearly €25 billion by the year 2012, with the main burden being shouldered by municipalities and regions. Its budget deficit amounts to 5.3 percent of GDP, roughly twice as much as in the past, yet remains significantly lower than the European average. The Italians plan for it to drop low enough to meet the Maastricht criteria, which stipulate that a euro-zone member's budget deficit can not exceed 3 percent of GDP, by the year 2012.

"This tradition is finita," says Luciano Barbera, as he opens the door to an underground warehouse. Dozens of large wooden boxes are stacked to the ceiling, containing nearly 80 tons of colorful thread, wound in spools and idling like sunbathers at a beach, absorbing moisture in a cavernous room kept naturally cool and humid by a creek that burbles under the floor.

"I call it a spa for yarn," explains Mr. Barbera, a lean and regal 72-year-old, who is dressed in a style that could be described as aristo-casual: white linen button-down shirt, brown herringbone pants and brown leather shoes. He is giving a quick tour of the Carlo Barbera mill, named for his 99-year-old father, and destined to be run by two or three of Luciano’s sons. Mr. Barbera calls wool a living fiber, and he does not mean this metaphorically. After yarn is dyed here, it rests in the spa for as long as six months, recuperating until 20 percent of its weight is water. Then the material undergoes a 15-step process, which Mr. Barbera will not detail, other than to magisterially summarize it as "the nobilization of the fabric."

Any shortcuts, he says, would harm the fabric’s "performance." Wait, performance? "Yes, performance," he says in an accent both purring and professorial. "If your suit is not performing well, it’s like being in a car where you can feel every little bump in the road. If a suit is performing well, it’s as though you drive right over the bumps and you feel nothing." And thus the paradox. As insiders of the fashion world will confirm, the bolts of wool and cashmere produced at this mill can indeed be described as high performance, among the finest in the world, sold to dozens of luxury brands like Armani, Zegna and Ralph Lauren.

The financial performance of the mill that creates this fabric, on the other hand, is far from stellar. Like much of the Italian economy, the Carlo Barbera factory is struggling and for reasons, according to academics, that say just about everything you need to know about what ails Italy. Since the economic crisis began, this country has regularly turned up on the informal list of Nations That Worry Europe. While its finances are not as precarious as those of Greece, Portugal or Ireland, because it is far larger — the Italian economy is the seventh largest in the world — its troubles are more frightening. As a recent report by UniCredit, a European banking group, put it, Italy is "the swing factor" in the crisis, "the largest of the vulnerable countries, and most vulnerable of the large."

Study the numbers and you will find symptoms of distress that look a lot like those of Greece. Public sector debt amounts to roughly 118 percent of the gross domestic product, nearly identical to Greece. And like Greece, Italy is trying to ease fears in the euro zone and elsewhere with an austerity package, one intended to cut the deficit in half, to 2.7 percent of G.D.P., by 2012. But dig a little deeper and the similarities end. The Italians, unlike the Greeks, are born savers, and much of the Italian debt is owned by the Italians. That means that unlike Greece, which will be sending a sizable percentage of its G.D.P. to foreign creditors for a generation to come, Italy is basically in hock to its own citizens.

"I know that in the States, all Mediterranean countries get lumped together," says Carlo Altomonte, an economist with Bocconi University in Milan. "But Italy’s problem isn’t that we have a lot of debt. It’s that we don’t grow." Like Italy, Mr. Barbera has debt woes — he owes his creditors roughly $5.8 million and says that if his country’s financial system offered the protections of Chapter 11-style bankruptcy, he would have sought it several years ago. But he could also solve his debt problem if more orders were coming in.

Instead, orders are drying up. The Barberas have long been small, niche players, the family that high-end designers turn to when assembling their most fabulous collections. And since 1971, Luciano Barbera has also sold clothing under his own name, made with his own fabric. Today the line is sold in stores like Barney’s and Neiman Marcus, handmade suits that sell for $4,000 and a line of upmarket women’s wear, some of which you can see on Angelina Jolie in the recent film "Salt."

But sales for Luciano Barbera clothing and Carlo Barbera fabric have drastically slowed in recent years. In the late ’90s, the mill enjoyed record annual sales of what amounts to about $15.5 million, Mr. Barbera says. Last year, the figure was half that sum. When describing the ills of his businesses, Mr. Barbera tends to focus on one issue: the "Made in Italy" label. For the last decade, he says, a growing number of clothing designers have been buying cheaper fabric in China, Bulgaria and elsewhere and slapping "Made in Italy" on garments, even if those garments are merely sewn here.

Until recently, there weren’t any rules about what "Made in Italy" actually meant, but that will change when a new law goes into effect in October. It states that if at least two stages of production — there are four stages altogether — occur in Italy, a garment is made in Italy. To Mr. Barbera, this is an outrage, though somehow the word "outrage" doesn’t quite capture the depth of his feelings. He says the law will wreck the national brand, which has long been built on the skill of its craftspeople.

In op-ed articles and an assortment of meetings, he has crusaded against the law, clashing with a nemesis with a familiar last name: Santo Versace, the chairman of the Versace house of fashion. Mr. Versace is also a member of Italy’s Parliament and a co-sponsor of what is officially called the Reguzzoni-Versace Law. "It’s a truffa," says Mr. Barbera one recent afternoon, using the Italian word for scam. "And I am fighting with all my strength to make people understand that this country is destroying itself in order to advance the interests of just a few people who are unfortunately members of the most powerful caste of this country."

But labeling is just one of many obstacles standing between Mr. Barbera and profitability. To understand why his factory, and so much of Italy, is stagnant or worse, requires a bit of geopolitical history and a look at the highly idiosyncratic business culture here. It is defined, to a large degree, by deep-seated mistrust — not just of the government, but of anyone who isn’t part of the immediate family — as well as a widespread aversion to risk and to growth that to American eyes looks almost quaint. It has economists here worried not about a looming fiasco so much as a gradual, grinding decline. "There is no sense of what a market economy is in this country," says Professor Altomonte. "What you see here is an incredible fear of competition."

The Carlo Barbera factory is a series of glass and brick buildings beside a stream about 55 miles west of Milan. Luciano Barbera grew up here, learning the craft from his father, before heading to the University of Leeds in England. He brought home know-how in textile engineering as well as admiration for British finery, to which he added a flair for color and pattern and which he has turned into a personal trademark. A fashion director at Neiman Marcus once called Mr. Barbera "the most elegant man in the world." It is not uncommon for strangers to introduce themselves and ask, "How can I look like you?" "I don’t want to generate people who all look the same," he says, sitting in his office one recent afternoon. "I am a soloist. You can be a soloist and play in an orchestra."

His career as a designer began, he says, almost by accident. In 1962, a photographer from Vogue snapped a photo of him in a suit made of fabric he had designed. (In the image, he is leaning against a fence, a cigar in hand, gazing at his horse, Edwan.) Several years later, a man named Murray Pearlstein, who owned LouisBoston, a menswear store, knocked at the Carlo Barbera factory, introduced himself to Luciano and told him that he wanted to sell his line of clothing to the American market. "I said: ‘Mr. Pearlstein, I have no collection. I have only my own suits.’ He said: ‘You have talent. You should design your own collection.’ "

At roughly 41 euros a meter ($48.75 a yard), the average price of the fabric that the Carlo Barbera factory produces today is almost double that of competitors in Biella, a town in the foothills of the Alps that has been renowned for centuries as a textiles hub. The problem is that fewer designers have been willing to pay this premium, and factories in other countries have been copying the Barberas’ methods, with results that may not be as good but that cost a small fraction of the price.

There’s a demand-side problem, too: the number of men buying bespoke suits has plunged in recent years, as the workplace becomes more casual. LouisBoston doesn’t carry Luciano Barbera any longer. "At a certain point, he could have gone to China and opened factories there," says Mr. Pearlstein, who is now retired. "But mentally, I don’t think there was any way he could do that because he has always been so committed to his hands-on methods." Mr. Barbera says he has no qualms about globalization. In his opinion, Italy can’t compete when it comes to low-skill labor and shouldn’t try.

"But I say that Italy, with its 20 million workers, can be the boutique of the world," he says. That will never happen, he adds, if designers can buy fabric outside Italy and tag it "Made in Italy." While his vehemence on this subject is easy to understand, economists here say that Mr. Barbera’s small empire would be teetering even if he could rewrite the "Made in Italy" law tomorrow. In a list of what is crushing Mr. Barbera’s balance sheet, they say, the provenance of labels is not at the top.

Five years ago, Francesco Giavazzi needed a taxi. Cabs are relatively scarce in Milan, especially at 5 a.m., when he wanted to head to the airport, so he called a company at 4:30 to schedule a pickup. But when he climbed into the cab half an hour later, he discovered that the meter had been running for more than 20 minutes, because the taxi driver had arrived soon after the call and started charging for his time. Allowed by the rules, but to Mr. Giavazzi, utterly unfair. "So it was 20 euros before we started the trip to the airport," recalls Mr. Giavazzi, who is an economics professor at Bocconi University. "I said, ‘This is impossible.’ "

Professor Giavazzi later wrote an op-ed article denouncing this episode as another example of the toll exacted by Italy’s innumerable guilds, known by several names here, including "associazioni di categoria." (These are different from unions, another force here, in that guilds are made up of independent players in a trade or profession who have joined to keep outsiders out and maintain standards, as opposed to representing employees in negotiations with management, as a union might.) Even baby sitters have associations in Italy.

The op-ed did not endear Professor Giavazzi to the city’s cab drivers. They pinned leaflets with his name and address at taxi stands around Milan and for the next five nights, cabs drove around his home, honking their horns. "This is a country with a lot of rents," says Professor Giavazzi, sitting in his office one recent afternoon, using the economists’ term for excess profits that flow to a business because of a lack of competition. "You need a notary public, it’s like 1,000 euros before you even open your mouth. If you’re a notary public in this country, you live like a king."

For Mr. Barbera, as is true with every entrepreneur here, the prevalence and power of Italy’s guilds explains much of what is driving up costs. He says he must overspend for accountants, lawyers, truckers and other members of guilds on a list that goes on and on: "Everything has a tariff, and you have to pay."

The protectionist impulses of the guilds are mimicked throughout the Italian labor market. The rules are different for small companies, but in effect, people with a full-time job in a company with more than 18 workers have what amounts to tenure, even if they don’t belong to a union. This makes managers reluctant to hire, especially in a downturn. You are stuck with new employees in perpetuity, whether they’re good or not. A sclerotic job market is a major reason that the Italian economy has been all but dormant for the past decade, growing far more slowly than its European peers. And this is a country that never had a housing bust or a major bank crisis.

So how does Italy keep going? Given the numbers, you expect it to be flat on its back. But when you visit, there are hardly any signs of despair, even in Biella, where hundreds of factories and warehouses have closed in the last decade. Why? One answer is the black economy, say economists. Roughly one-quarter of Italy’s G.D.P. is off the books. When you inquire about the cause and persistence of this longstanding fact of life, people here say that most Italians have little sense of national identity, an obstacle to a system of national taxation. The country didn’t really begin to transcend its clannish roots and regional dialects until after World War II; even today, displays of national pride are reserved for World Cup victories and little else.

Italians, notes Professor Altomonte, are among the world’s heaviest consumers of bottled water. "Do you know why? Because the water in the tap comes from the government." The suspicion of Italians when it comes to extra-familial institutions explains why many here care more about protecting what they have than enhancing their wealth. Most Italians live less than a mile or two from their parents and stay there, often for financial benefits like cash and in-kind services like day care. It’s an insularity that runs all the way up to the corporate suites. The first goal of many entrepreneurs here isn’t growth, so much as keeping the business in the family.

For a company to really expand, it needs capital, but that means giving up at least some control. So thousands of companies here remain stubbornly small — all of which means Italy is a haven for artisans but is in a lousy position to play the global domination game. "The prevailing management style in this country is built around loyalty, not performance," says Tito Boeri, scientific director at Fondazione Rodolfo Debenedetti, who has written about Italy’s dynastic capitalism.

In the eternal contest between the meticulously honed and the nationally franchised, Italy knows where it stands. As a matter of profit and loss, it doesn’t make sense to store wool in a spa and let it convalesce for six months, but the methods of Luciano Barbera were never destined for a get-rich-quick guide to manufacturing. His business will make sense only to customers, and for them, quality has a logic of its own.

And of course, the worship of growth has its limitations. The American economy is vastly more robust, but instead of family-owned bakeries, which seem to dot every hectare of Italy, we’ve got Quiznos. And for all the efficiency and horsepower in Germany, no character in a movie has ever welled up and sighed, "We’ll always have Stuttgart." Despite his cash flow woes, Mr. Barbera is sticking to his plan, even the plan to hand his business to his sons, which according to a national maxim is likely to end in tears.

"We say in this country that the first generation builds, the second generation maintains and the third generation destroys," Mr. Barbera says. "But my father and I worked together, so I think we were the first generation. My sons are the second generation. So at least they will maintain." Mr. Barbera can discuss all the quirks and pathologies of the Italian economy, but there is rarely more than five minutes between his monologues about "Made in Italy." He is reluctant to name the fashion houses he thinks are snookering consumers, in part because they are his customers, and in part because they are acting legally. "I’m criticizing the law," he says. "I am not criticizing the people who buy my fabric."

One name he is happy to mention is Santo Versace, whose purchases — his brand buys a "very small" amount of fabric, says Mr. Barbera — are eclipsed by his role in pushing the new law. In a phone interview, Mr. Versace noted that there was no "Made in Italy" rule before the law he co-wrote, which means his rule is a huge improvement on the free-for-all that had existed. Yes, his company makes less expensive products, like jeans, in countries like Croatia and Turkey, but he said every luxury brand does the same. "Never our top stuff," he said, through an interpreter. "All of that is made in Italy."

He sounded skeptical about one of Mr. Barbera’s ideas: a label that simply lays out the origins of a garment, stating where its fabric was made, where it was constructed, and so on. "You can’t make a label too complicated," said Mr. Versace. "You need a simplified label. Otherwise you can’t sell things."

For now, Mr. Barbera is hoping that the European Commission will overturn the law, which it can do. Meanwhile, garments in the collection that bears his name are labeled "Entirely manufactured in Italy." Economists said that Mr. Barbera had a point, but they also said that worrying about this issue was like fretting about the head cold of a patient with Stage 3 cancer. They see a country with a service sector dominated by guilds, which don’t just overcharge but also raise the barriers to entry for the millions in ill-fated manufacturing jobs who might otherwise find work as, for instance, taxi drivers. They see a timid entrepreneur class. They see a political system in the thrall of the older voters who want to keep what they have, even if it dooms the nation to years of stasis.

They see a society whose best and brightest are leaving and not being replaced by immigrants, because Italy has so little upward mobility to offer. To Professor Giavazzi, the future here doesn’t look like Greece. It looks like Argentina. "Before World War II, Argentina was rich," he says. "Even in 1960, the country was twice as rich as Italy." Today, he says, you can compare the per capita income of Argentina to that of Romania. "Because it didn’t grow. A country could get rich in 1900 just by producing corn and meat, but that is not true today. But it took them 100 years to realize they were becoming poor. And that is what worries me about Italy. We’re not going to starve next week. We are just going to decline, slowly, slowly, and I’m not sure what will turn that around."

Mr. Barbera is optimistic. He is working with a bank to allow him to pay off creditors. After lengthy negotiations with the government and workers’ representatives, he has reduced his payroll to 90 employees from 120. Best of all, he says he thinks he has found a large group of new customers in an improbable place: China, where he has been talking to a number of distributors. Given that he has been undersold by the Chinese for years, it would be a surprising twist if Chinese consumers became fans of Mr. Barbera’s fabric and his painstaking methods. "Water from the creek," he says, as we leave the yarn spa. "Listen. It is the sound of music."

The sentiment seems so sincere and romantic that it sounds as if he could be kidding. But when the line elicits a laugh, Mr. Barbera’s gentle rebuke makes it plain that he is not. "You know," he says, with a resilient smile, "it is a hard world for poets."

Billionaire businessman Manuel "Matty" Moroun is poised to move a step closer to tightening his control of traffic across the Detroit River, one of the continent's busiest and most economically vital border crossings. Mr. Moroun, whose Detroit International Bridge Co. owns the Ambassador Bridge connecting Detroit and Windsor, Ontario, is expected this week to win approval from Canadian customs authorities for a key part of his plan to build a second span over the same stretch of water. By contrast, plans for a competing, publicly owned bridge have stalled amid concerns over the potential cost to taxpayers.

At stake are tens of millions of dollars of annual toll revenue and a critical link in the U.S. auto industry's supply chain. Customs authorities' go-ahead for a new bridge plaza to be developed by Mr. Moroun—including toll booths and customs-inspection buildings—would all but clear the way for his company to seek a final environmental permit from the Canadian transportation department to build the new six-lane bridge, adjacent to the existing one. The permit is one of the few regulatory hurdles remaining before construction can begin. "This was the big enchilada," Mr. Moroun's son Matt, vice chairman of the bridge company, said in an interview. "We are now 80% of the way there."

Some $1.2 billion worth of goods cross the U.S.-Canada border each day, a quarter of that over the Ambassador Bridge. Much of the traffic is trucks carrying auto parts or finished vehicles between the two countries.Chrysler Group LLC, which has factories in Windsor and Detroit, moves more than 1,300 shipments across the border daily. Last year's traffic flow of 6.4 million cars and trucks generated about $60 million of annual toll revenue for the Morouns' bridge company.

The public project, meanwhile, has broad backing from U.S. and Canadian officials and from the Michigan Department of Transportation. But despite pleas from Michigan Gov. Jennifer Granholm and an offer from Canada to subsidize the state's construction costs, Michigan's Senate adjourned this month without voting on a bill to advance the plan. Political and business leaders on both sides of the border see a new bridge as an essential backup to the Ambassador, which opened in 1929. Their preferred route is the six-lane Detroit River International Crossing, or DRIC, a project that would cost about $5.3 billion. The DRIC would cross the river about three miles south of the Ambassador and would be built and operated by a public-private partnership.

Backers of the DRIC say it would open in January 2016 and generate $70 million of toll revenue during its first year, while speeding the flow of goods between the U.S. and Canada. The Morouns' twinning plan, they say, wouldn't add enough capacity because it would involve mothballing the older span. To build support for the DRIC, Canada has offered to pay up to $550 million of Michigan's construction costs, which it expects to recoup through tolls.

But the DRIC can't move forward until Michigan's state Senate passes a bill authorizing the creation of the public-private company. Only then can Michigan's transportation department begin acquiring land and building infrastructure, a process that could take years. Republican state Sen. Jud Gilbert, chairman of the transportation committee, said he won't bring the bill to a vote until it sufficiently protects the state if toll revenue falls short. "We are working to try and construct some legislation that ensures the taxpayer won't be on the hook," he said.

That puts the Morouns' timeline well ahead of the DRIC. They control huge swaths of land in Southwest Detroit and have already invested $500 million in upgraded access roads and toll plazas on both sides of the border. That infrastructure is built, though it remains closed pending resolution of a property dispute in Detroit. The Morouns propose to build a new six-lane span and then close the old four-lane span for refurbishment. It would reopen only to accommodate overflow traffic. Matt Moroun says his company would cover all construction costs and could open the new span in as little as three years after receiving Canadian approval.

With the bridge-plaza go-ahead in hand, his company could seek the final environmental permit within a couple of months. "Best case, we would get the permit sometime this year. Worst case, we would have to wait until next year," Mr. Moroun said. James Kusie, spokesman for the Canadian transport minister, said there is no specific time frame for a permit approval. He added that the Canadian government still strongly favors the DRIC. "We believe it is in the public interest to construct a new Detroit River crossing that is subject to appropriate public oversight," he said.

Mr. Gilbert said he hasn't given up on the DRIC either. He said he is continuing to work on a revised bill, but declined to say when it might be introduced. He added that if Mr. Moroun begins erecting a second span before the DRIC project gets moving, the entire issue of a new bridge would be up for reconsideration.

Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone. That's thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.

The high-value bills are increasingly "making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments," wrote Willem Buiter, chief economist at Citigroup, in a recent research report. The business of issuing euro notes, produced at almost zero cost, is "wildly profitable" for the ECB, Mr. Buiter wrote. When euro notes and coins went into circulation in January 2002, the value of €500 notes outstanding was €30.8 billion ($40 billion), according to the ECB.

Today some €285 billion worth of such euro notes are in existence, an annual growth rate of 32%. By value, 35% of euro notes in circulation are in the highest denomination, the €500 bill that few people ever see. In 1998, then-U.S. Treasury official Gary Gensler worried publicly about the competition to the $100 bill, the biggest U.S. bank note, posed by the big euro notes and their likely use by criminals. He pointed out that $1 million in $100 bills weighs 22 pounds; in hypothetical $500 bills, it would weigh just 4.4 pounds.

Police forces have found the big euro notes in cereal boxes, tires and in hidden compartments in trucks, says Soren Pedersen, spokesman for Europol, the European police agency based in The Hague. "Needless to say, this cash is often linked to the illegal drugs trade, which explains the similarity in methods of concealment that are used." A spokeswoman for the ECB declined to comment on who uses the bills.

The ECB and its member governments are beneficiaries of the demand. The profit a central bank gains from issuing currency—as well as from other privileges of a central bank, such as being able to demand no-cost or low-cost deposits from banks—is known as seigniorage. It normally accrues to national treasuries once the central banks account for their own costs. The ECB's gains from seigniorage are becoming increasingly important this year.

The ECB has taken hundreds of billions of euros of assets of unknown quality on to its balance sheet as it has reacted to the global financial crisis. It holds more than €600 billion in collateral from banks to which it has made loans, and more than €400 billion in securities it holds outright, including government bonds. Overall, the ECB's balance sheet has grown to almost €2 trillion. It has a capital base of €78 billion. That creates leverage that makes it look like a "hedge fund on steroids," Mr. Buiter wrote. It wouldn't need to lose much on these assets to wipe out its thin cushion of capital.

That's where seigniorage comes in. In recent years, the profits on its issue of new paper currency have been running at €50 billion. In 2008, the year of the Lehman Brothers crisis, it was €80 billion. Even with conservative assumptions about future growth of currency in circulation—at, say, 4% a year, which is in line with the ECB's 2% inflation target plus a margin for economic growth—Mr. Buiter estimates future seigniorage profits for the central bank between €2 trillion and €6.9 trillion.

Thanks to seigniorage, he says, the ECB is "super solvent." An ECB spokeswoman says there's no plan to withdraw high-value notes, national equivalents of which were used in six member states before the euro was launched. They will be retained when a redesigned series is issued in coming years. Replacing them with small denominations would increase production and processing costs, she says.

The United States and Europe have been remarkably insouciant about supplies of rare earth minerals so crucial to frontier technologies, from hybrid engines to mobile phones, superconductors, radar and smart bombs.

The United States and Europe have been remarkably insouciant about supplies of rare earth minerals so crucial to frontier technologies, from hybrid engines to mobile phones, superconductors, radar and smart bombs. Lack of strategic planning by the West has allowed China to acquire a world monopoly on this family of seventeen metals. Assumptions that Beijing would never risk its reputation as a global team player by abruptly strangling supply have proved naive.

China’s commerce ministry has cut export quotas for these metals by 72pc for the second half of this year. It is perhaps the starkest move to date in the Great Power clash over scarce resourses. The Pentagon and the US Energy Department are still scrambling to work out what this means for US security. An interim report from the Government Accounting Office (GAO) has laid bare just how delicate the situation has become. "The US previously performed all stages of the rare earth material supply chain, but now most rare earth materials processing is performed in China, giving it a dominant position. In 2009, China produced about 97 percent of rare earth oxides. Rebuilding a U.S. rare earth supply chain may take up to 15 years," it said. Fifteen years?

China's rare earth blockade is becoming more piquant by the day as the country swaps threats with the US over the South China Sea. I leave it to scholars at The Hague to evaluate China's claim to "indisputable sovereignty" over waterways that carry half the world's freight shipping. One does notice that much of the sea is a long way from China, and close to Vietnam, the Philippines, and Brunei. There are no settled communities on the islands. The Falklands parallel is invalid.

What is new is that China has chosen to press the issue by calling these waters a "core interest" like Tibet and Taiwan, and is conducting live-fire naval and air exercises. Equally new is that the Obama administration has chosen to resist, a change of tack after sponsoring China's fuller inclusion in world governance through the G20 and the IMF. "We oppose the use or threat of force by any claimant. Legitimate claims to maritime space in the South China Sea should be derived solely from legitimate claims to land features," said Secretary of State Hillary Clinton . In plain English, "back off".

The foreign ministry called this "an attack on China" and accused Washington of trying to "coerce" smaller countries to take sides in the dispute. There is more than a whiff of "encirclement" fever in these exchanges, like German neurosis in the decade before 1914 that became self-fulfilling. A ring of states around China are indeed beefing up their military ties with the US. Why might that be? The GAO report said the US had been self-sufficient in rare earth minerals for most of the post-War era. The key mine at Mountain Pass in California shut down in the 1990s when China flooded the market with exports and drove Western mines out of business. One by one, US-based processing plants owned by German and Japanese firms switched operations to China. There are none left.

Cutting-edge weapon technologies are classified, but the GAO said the M1A2 Abrams tank and the Aegis Spy-1 radar both rely on chinese samarium. The US Navy's DDG-51 Hybrid Electric Drive Ship needs neodymium, which enhances the power of magnets at high heat. The Hell Fire missile requires Chinese components, as do a host of functions in satellites, avionics, night vision equipment, and precision-guided munitions. Some of the metals such as terbium, dysprosium, thulium, and lutetium, europium, cerium, and lanthanum are more important that others, but crudely speaking they are the salt of life for the high-tech revolution -- sprinkled in iPads, Blackberries, plasma TVs, water filters, or lasers.

Each Toyota Prius uses a fistful of rare earth elements, which is why Toyota has purchased the rear metals dealer Wako Bussan. Cerium is used in catalytic converters for diesel engines. Terbium is key for low-energy light-bulbs that cut power costs by 40pc. Neodymium is used in hard-disk drives, wind turbines, and the electric motors of hybrid cars. Fresh research in Tokyo shows that rare metals can cut friction on power lines, slashing leakage.

Countries that cannot obtain these minerals --at any price – will not play much part in the technology revolution. Japan already has a "Strategy for Ensuring Stable Supplies of Rare Metals". Japanese companies have been stockpiling feverishly for the last five years -- which may be one reason why China decided to cut off supplies. The West has been caught off guard. The US Magnetic Materials Association said America has drifted into a "silent crisis" and needs to crank up its own supply chain within three to five years."Immediate action must be taken to free the US from complete foreign dominance."

Rare metals are not in fact very rare. Large amounts exist in the US, Canada, Australia,, South Africa, Russia, Sweden, Vietnam, and above all Greenland with a third of the world's known reserves. What is rare is to find them in viable concentrations. The metalurgy is complex. The frequent presence of radioactive Thorium complicates matters. Extraction is capital intensive. Yet the current situation is clearly intolerable. Congress is demading action through amendments to the National Defence Authorization Act. It is fair bet that the Western powers will soon funnel large sums of money into this very small niche.

Adventurous investors may want to look at Molycorp Inc, which is reopening the Mountain Pass mine but struggled with a share issue last week. Together with Arafura and Lynas Corp in Australia, it hopes to produce some 50,000 tonnes of rare earth metals by mid-decade. That is not enough for world needs. Avalon Rare Metals in Canada is a start-up play for the ultra brave. Greenland Minerals and Energy may tempt some. Beijing’s export curb is understandable on one level. China's own industy will need most of its output within three or four years. The crunch will come one way or another. But as our Beijing correspondent Peter Foster has reported, the export limits seem designed to compel foreign technology companies to locate plants in China. This looks like a breach of World Trade Orgnaization rules.

Once again we see how China plays the globalization game, taking full advantage of WTO access to western markets without opening its own to the same degree, and all the while holding down its currency for mercantilist gain. My hope is that this rare earth move was as much cock-up as conspiracy. Surely the Politiburo does not really think that China can act in this arbitrary fashion without eliciting a response? Please tell us it was an administrative error. Then reverse it.

The amount of phytoplankton - tiny marine plants - in the top layers of the oceans has declined markedly over the last century, research suggests. Writing in the journal Nature, scientists say the decline appears to be linked to rising water temperatures. They made their finding by looking at records of the transparency of sea water, which is affected by the plants. The decline - about 1% per year - could be ecologically significant as plankton sit at the base of marine food chains.

This is the first study to attempt a comprehensive global look at plankton changes over such a long time scale. "What we think is happening is that the oceans are becoming more stratified as the water warms," said research leader Daniel Boyce from Dalhousie University in Halifax, Nova Scotia, Canada. "The plants need sunlight from above and nutrients from below; and as it becomes more stratified, that limits the availability of nutrients," he told BBC News. Phytoplankton are typically eaten by zooplankton - tiny marine animals - which themselves are prey for small fish and other animals.

Disk recordThe first reliable system for measuring the transparency of sea water was developed by astronomer and Jesuit priest Pietro Angelo Secchi. Asked by the Pope in 1865 to measure the clarity of water in the Mediterranean Sea for the Papal navy, he conceived and developed the "Secchi disk", which must be one of the simplest instruments ever deployed; it is simply lowered into the sea until its white colour disappears from view.

Various substances in the water can affect its transparency; but one of the main ones is the concentration of chlorophyll, the green pigment that is key to photosynthesis in plants at sea and on land. The long-term but patchy record provided by Secchi disk measurements around the world has been augmented by shipboard analysis of water samples, and more recently by satellite measurements of ocean colour. The final tally included 445,237 data points from Secchi disks spanning the period 1899-2008.

"This study took three years, and we spent lots of time going through the data checking that there wasn't any 'garbage' in there," said Mr Boyce. "The data is good in the northern hemisphere and it gets better in recent times, but it's more patchy in the southern hemisphere - the Southern Ocean, the southern Indian Ocean, and so on." The higher quality data available since 1950 has allowed the team to calculate that since that time, the world has seen a phytoplankton decline of about 40%.

Phytoplankton... produce half of the oxygen we breathe, draw down surface CO2, and ultimately support all of our fisheries"Professor Boris Worm, Dalhousie University

Ocean cyclingThe decline is seen in most parts of the world, one marked exception being the Indian Ocean. There are also phytoplankton increases in coastal zones where fertiliser run-off from agricultural land is increasing nutrient supplies. However, the pattern is far from steady. As well as the long-term downward trend, there are strong variations spanning a few years or a few decades.

Many of these variations are correlated with natural cycles of temperature seen in the oceans, including the El Nino Southern Oscillation (ENSO), the North Atlantic Oscillation and the Arctic Oscillation. The warmer ends of these cycles co-incide with a reduction in plankton growth, while abundance is higher in the colder phase. Carl-Gustaf Lundin, head of the marine programme at the International Union for the Conservation of Nature (IUCN), suggested there could be other factors involved - notably the huge expansion in open-ocean fishing that has taken place over the century.

"Logically you would expect that as fishing has gone up, the amount of zooplankton would have risen - and that should have led to a decline in phytoplankton," he told BBC News. "So there's something about fishing that hasn't been factored into this analysis." The method of dividing oceans into grids that the Dalhousie researchers used, he said, did not permit scrutiny of areas where this might be particularly important, such as the upwelling in the Eastern Pacific that supports the Peruvian anchovy fishery - the biggest fishery on the planet.

Absorbing factsIf the trend is real, it could also act to accelerate warming, the team noted. Photosynthesis by phytoplankton removes carbon dioxide from the air and produces oxygen. In several parts of the world, notably the Southern Ocean, scientists have already noted that the waters appear to be absorbing less CO2 - although this is principally thought to be because of changes to wind patterns - and leaving more CO2 in the air should logically lead to greater warming.

"Phytoplankton... produce half of the oxygen we breathe, draw down surface CO2, and ultimately support all of our fisheries," said Boris Worm, another member of the Dalhousie team. "An ocean with less phytoplankton will function differently." The question is: how differently? If the planet continues to warm in line with projections of computer models of climate, the overall decline in phytoplankton might be expected to continue. But, said Daniel Boyce, that was not certain.

"It's tempting to say there will be further declines, but on the other hand there could be other drivers of change, so I don't think that saying 'temperature rise brings a phytoplankton decline' is the end of the picture," he said. The implications, noted Dr Lundin, could be significant. "If in fact productivity is going down so much, the implication would be that less carbon capture and storage is happening in the open ocean," he said. "So that's a service that humanity is getting for free that it will lose; and there would also be an impact on fish, with less fish in the oceans over time."

Below the post there are quite a long list of recent links to articles elsewhere, some hiding quite major news slipping bye with everyone mostly interested in their own subjects.

http://www.bbc.co.uk/news/science-environment-10781621 is on the article in Nature, on the apparent loss of 40% of the world ocean's main plankton food sources in only the last 60 years.

That's one of an increasing list of rather major ecological catastrophes blind siding us right now. Talk about deflation!!! That's global ocean deflation occurring right now, and points to a natural physical sustainability threshold for the oceans having been crossed silently some time recently.

I'm not sure whether it's just been that we've been attributing declining fish populations to our eating them, or what, but if what they eat is also vanishing that fast perhaps it's the bigger factor...?

What's it have to do with credit card fees?? Maybe it's just about how we're all so distracted by so many things going wrong, with people using their wealth to rip off wealth from other people constantly, for us to chase after. We're not looking at the irreversible consequences accumulating in environment... though, and that itself is one of the consequence. We're also not looking at options for removing the source of the distraction keeping everyone from making sensible decisions.

I've looked at that fairly closely, that Keynes, Boulding and I all came to the same conclusion independently about why, at the limits of physical growth for our system, the economies all naturally run out of money.

I think max and the rest of the "money"people are sensing that some deep currents are changing in the way the money/resources,ect are being alloted.I think everyone is/should be keeping their eyes peeled for what may at first seem a "mild" dislocation that will signal the "econoquake"is getting underway in earnest.

Indeed.

Of course, timing is everything, and something I think about a lot. You see, the question revolves around just when to execute several key tactical decisions, so as to expedite an overall strategy.

For example, if one has access to cash, cash-equivalents, precious metals, and the like, there are a couple of key decisions to make.

1) At what point does one begin converting these into living requirements (arable land, homestead, tools, sustainable energy devices, etc.)? In a deflationary environment, if you do so too early, you will pay more (much more) than if you wait until prices crash. OTOH, if you start earlier rather than later, you have the time to gain experience and knowledge of all the resources acquired.

2) As a precursor to the above, at what time does one remove the cash/equivalents/PMs from safekeeping (banks, safety-deposit boxes, etc.) so as to avoid losses due to currency collapse, bank holidays, etc.? Storing large amounts of cash and PMs on one's property is dangerous. However, what signals the right moment for withdrawals?

And these are but two small tactical/strategic decisions that depend on correctly anticipating the correct "dislocations" upon which to react.

Ilargi's opening essay mentions Citizens United, part of the process of bringing the U.S. the best government money can buy. Last week people were talking here about the Generation Zero film, which explores the cultural roots of the current global financial meltdown disaster. That's a Citizens United production.

Sometimes these things skip can skip a generation. My statements were correct for your parents; and for your children. :-) Not, indeed, for you.

"I'm not an intellectual, and people shouldn't take what I say too seriously or treat my words as factual, I certainly don't.I'm more an artistic type of woolly thinker and may have to stick a "WARNING woolly thinking mystic" disclaimer at the ends of posts."

Oh, it's a slippery world out there. Many people I know who call themselves intellectuals, aren't, at all. And many of my fuzzy brained artist friends, are.

My flute, incidentally, is silver plated brass, with a solid sterling silver mouthpiece; something many flautists believe has better sound student flutes. Georges Barrere had one made of 90% platinum/10% iridium. I'd be fascinated to know if any of that made differences in the sound that would be noticeable in a double blind study.

An article in Spanish claims science publications are impossibly expensive, into the thousands of euros, preventing recent findings from reaching university audiences, etc. http://www.madrimasd.org/blogs/universo/2010/08/02/136452

For those interested in buying a working farm, the Tuttle's Red Barn Farm (150 acres) in New Hampshire is for sale. Asking price: $3.35 million. Started in 1632, it's one of the oldest, if not the oldest in the US. Reasons for selling:

There are many reasons for our decision, all having to do with exhaustion of resources: our bodies, our minds, our hearts, our imagination, our equipment and machinery, our finances. Our area has been hit very hard by the current economic crisis. Many people are out of work, while a good number of our older customers have lost much of their investment income. Over the past several years, customers have gone from using shopping carts to using shopping baskets to using just their hands to gather what they can afford to purchase.

Ventriloquist said:"1) At what point does one begin converting these into living requirements (arable land, homestead, tools, sustainable energy devices, etc.)? In a deflationary environment, if you do so too early, you will pay more (much more) than if you wait until prices crash. OTOH, if you start earlier rather than later, you have the time to gain experience and knowledge of all the resources acquired."

In my opinion, the sooner you start the better off you will be. Time cannot be bought back. Experience cannot be bought after it is needed. Paying more for something early is preferable to not getting it at all cheaper later.

Yes,timing is where the rubber meets the road.I am risking a road trip at a time I would just as soon sit tight and watch the show,but my wallet cry's out"feed me"just like the plant in "Little shop of horrors". Greenpa,I played flute when a child,You mentioning it brought some memories.[smile]

Ventriloquist,Living the type of lifestyle that will be needed to ensure a "comfortable" existence in the future, requires a either a LOT of money,and careful planning.And practice.I do not live a typical "usaian"life,in many ways.Do not expect to live within the constraints of such a style of life ,without a certain amount of transition,otherwise "the shoes may not fit too well"

Ric,that bit of news from "the red barn" can sum up what everyone is facing.As has been said before,"the future is here now,its just not spread evenly"

Looking at the next disaster,the one where one where a whole lot of what we call "Reality" will change in ways we cant dream of,is what I loose sleep over sometimes.I see it "In the corner of my eye",just out of full view.I know its coming,but still see little I can do to change the fate of my nation.That bit about "the red barn"disturbed me in a profound way.The description of going from shopping carts,to baskets,to what could be carried by hand,as a description of how their business dwindled,is so true.It seems to be a good way of describing America now. If I go do some needed chores I will feel better I think...

A great collection of articles today! I especially enjoyed (if that is the right word) reading about the Crisis of the middle class and the article following that the Gen Y's in crisis. Tweeted a lot about that, as it has some really high impact material.

The articles on Italy were interesting as well. Nice post this one though saddening in context, but nice in the way they engage the reader and weave a tale :)

I'm interested in lautturi's comments on the Dow, but I find it difficult to understand, and the Google Finnish translation leaves something to be desired. Could lautturi or anybody else shed further light on the Fibonacci cycles?

My husband is betting on a new stock market high for the year. Dump your dollars and pocket some stocks; the risk-on trade is back in action. Quantitative easing 2.0 is on the way. When the market breaks-through the April 2010 high, then deflationists will lose all credibility. Keep your eyes on 1217 for the S&P500. We'll be testing it within weeks.

Just reading that Nasa says a " solar tsunami" will hit earth on Tuesday. It is not clear how severe the impact will be but could affect communication systems. I am wondering about electronic banking. Anyone got any insights on a solar Tsunami and whether one should take some precautionary measures? Could this be the event marked by Crawford at this time?

According to this site, this flare was a C3 class (should not be a problem, though maybe we get some cool light shows farther south than usual).http://www.spaceweather.com/glossary/flareclasses.html?PHPSESSID=gmpsvgi5l8v0j7h6f56gtap0m6

I am betting on some solid TAE lifeboat advice. Sold my house in Hawaii which I bought in late 1998 (was almost 12 years into a 30-year note). Managed to get out with somewhat of a non-earned profit by closing before April 30.

Moved back to the East Coast to be near my sisters, their kids, my parents, my brother, my cousins, etc.

Am in cash and short-term treasuries.

Managed to convince my Hawaii job to let me telecommute "as long as it works." It's sorta working, but I am pretty sure I will lose this job by the end of the year. For now, I am getting a paycheck and have health insurance.

But the real value, I, as a human, create, is when I go to work for vegetables at a local permaculture/orgnanic small-scale farm here in rural Maryland about 15 hours a week while trying to learn as much as I can about growing food in the Mid-Atlantic for as long a possible season.

Cheryl - glad to see you back, but your last post, from my point view, seems to be coming from Timbuktu or the Moon. You are so far disconnected from the reality descending upon us, I almost think you aren't a real person. For added effect, you should describe the purchases of plasma-screen TVs, Volt cars, etc. that you and your husband execute because of all the money you "made" in the stock market.

Isn't it great to get "value" for nothing? Isn't that how reality works? You can create value by doing absolutely nothing except guessing the correct DJIA/S&P500 ticker symbols?

Something for nothing. Thanks for reminding of that absurd concept, Cheryl. We were beginning to forget about it here.

Did you see this Zerohedge article describing some of the crazy investment schemes foisted upon the rural Chinese? Can you comment on the similarities between this and what you studied in Eastern Europe post-Iron Curtain?

QE 2? Hasn't the FED already being doing that since QE 1 "officially ended" back in March, to the tune of $10 billion a week?

Noticed oil's back over $80 a barrel again today. Now the DOW and crude are highly correlated at the moment. The higher the DOW climbs (thanks FED!) the more expensive Texas tea gets.

Hmmm. I have a thought experiment for you. How high do you think the price of oil will climb this time, (assuming said FED keeps throwing money at the DOW) before it helps tank the economy, again and deeper?

What happens then? QE 3? Sure, gotta keep the punters (I mean, investors) happy for as long as possible, since betting is now the only game left in Americatown.

I'm interested in lautturi's comments on the Dow, but I find it difficult to understand, and the Google Finnish translation leaves something to be desired.

I'll second your frustration. Forget the Fibonacci part and and just focus on the "cycle" part. It's a mathematical model ... there is no such thing as true chaos (in some sense if there was the universe never would have been anything more than a sea of "quarks.")

The idea more or less is that we're somewhere around a top in the "market." You can pretty much take the graph from 09/2010 - 11/2011 and overlay it on the period from 01/2008 - 03/2009 (and the 2 parts "line up"). The conclusion is that we're edging up to the cliff - the ravine below is DOW 4000.

That or I guess the alternative is infinite growth on a finite planet. Run out into the street - dump dollars and pocket stocks you happen to find.

Ilargi's opening essay mentions Citizens United, part of the process of bringing the U.S. the best government money can buy. Last week people were talking here about the Generation Zero film, which explores the cultural roots of the current global financial meltdown disaster. That's a Citizens United production.

Wow, good catch. Could it really be the case that the Newts co-opted the good Kondratieffian message for their own purposes?

Ah, yes... sorry about using Finnish on my Dow "drawing" (Finnish is pretty flexible language and I'm pushing it quite a lot). No translator can catch all the nuances - let alone all the twisted words.

Anyhoo, I'm just a bloke drawing on sand about Dow, Finobachies (or whatever) etc. In my scratch 2007 drop to low in 3/2009 compares to recent April high (gooooood weed) as a 61,8% bear rally. Also the latest 1600pts drop is retracing to 61,8% as we speak. I just copy-pasted the big (early 2008 to 2009) drop on tail of Dow as the latest retracement looks pretty similar (lower double-top) to Dow's 1930s "progress" in the next pic.

However, if you are interested in true EW-thinking, then you should try Daneric's site. No weird languages there, either.

Good luck to Cheryl (and husband), there's always a change for other ways in our multidimensional world. Also recent Obush's "customer protection act" made it legal to pump banks so what do I know. But the odds, the odds...

Actually I wrote later in my text that around the New Year this "string pushing" could propel markets to The last high for the next decade. I guess pumping banks after a drop to 8000 in Dow sounds "acceptable" to some people. We'll see soon enough.

Now, there is nothing preventing the average Joe Q. Taxpayer from also 'buying' a congressman, right?

In FY2009, the government collected $915 billion in personal income taxes. What if, as taxpayers, we decided that we wanted to set $10 billion of that aside, every year, so that we could 'buy' our own congress. How many congressmen/senators could we buy with that kind of dough?

Admittedly, it would be paying for something that, in theory, we should be getting for free - that is, elected representatives that have the interest of 'we the people' at heart. But, honestly, I never believed in "somethin' for nothin'"; I always thought that, one way or another, we were going to have to give a little more in order to receive a little more.

But I realize that the level of 'non-governmental, non-corporate' organization needed to realize a change in governance such as this would be a monumental undertaking.

"Carl-Gustaf Lundin, head of the marine programme at the International Union for the Conservation of Nature (IUCN), suggested there could be other factors involved - notably the huge expansion in open-ocean fishing that has taken place over the century.

"Logically you would expect that as fishing has gone up, the amount of zooplankton would have risen - and that should have led to a decline in phytoplankton," he told BBC News. "So there's something about fishing that hasn't been factored into this analysis." "

I have to say that I agree with Lundin's analysis. Marine ecosystems are being exploited on several fronts... the first is the unprecedented increase in overfishing over the past 50 years, thanks to our booming population, massive leaps in fishing technologies and a huge increase in the number of people taking fish stocks at 'unsustainable' rates (ugh... hate the word 'sustainable', has been co-opted by the corporatocracy to mean 'buy a new hybrid car to save the planet (bangs head against brick wall)). The other major pressure on phytoplankton stocks has been the influx of anthropogenic chemicals, both from continental watersheds and also from the decomposition of plastics. Phytoplankton are incredibly sensitive and suffer from reduced photosynthetic capacity when exposed to chlorinated compounds... this would seem to be something that has been overlooked in the race to blame everything on 'carbon' (which is actually a plant food!).

Russian wheat production devastated by drought, Canadian production devastated by floods. About a third of production gone in both cases. For more details see FT article Rise in wheat prices fastest since 1973 available via google.

If we could invest into agriculture instead of Ricardian gambles on housing, we could avoid this. It could be too late, however...

However, according to Ayres in one of his earlier books (sorry, no link or reference), the raw materials used for the endosomatic metabolism (such as P, I would imagine) are more difficult to replace than those used in the exosomatic. Thence we get back to agriculture and the recent large-scale crop failures.

If you study the animation of events in nature you know they invariably begin with a spark and then an explosion of changes that either then stabilize or drop off.

On the plankton drop off, which 40% of the earth's ANYTHING dropping off in 60 years is really extreme, I'm expecting there's more to it than global warming. In any event, it remains inexplicable that our world plan is still to continue multiplying the stresses causing ALL our multiplying severe environmental impacts.

Why not approach it scientifically, identify the process pumping up the stress and recognize the trade offs involved in relieving it or not, and make a rational choice. It can actually be simplified to that level.

To me, when knowledgeable people speak as Snuffy said:[[the rest of the "money"people are sensing that some deep currents are changing in the way the money/resources,ect are being alloted.I think everyone is/should be keeping their eyes peeled for what may at first seem a "mild" dislocation that will signal the "econoquake"is getting underway in earnest.]]I think it makes us sound like fatalistic soothsayers...

The problem is that we are fatalistic soothsayers. I've spent a few years opening the eyes of a younger colleague of mine to the fact that his scientific engineering based outlook on reality is an aberration. It's not the norm amongst people today and it certainly was not the norm historically. A few incidents in the last 6 months have finally made that concept hit home rather than just live in his brain as an idea and he's finally appreciating what it means.

And frankly, what it means is precisely that our leaders act like soothsayers rather than like scientists and the results of their actions will not be what they expect.

Almost daily I have conversations with people who do not grasp what we are doing to the planet nor the consequences thereof. And these are people who make decisions, from local business owners to local politicians, and occasionally state and even national politicians. Almost none of them recognize what is happening and thus they turn to time honored formulas. If it worked for our grandparents it should work for us, right?

All of the above is what has led me, for years, to say that our problems are all probably technically solvable but the real problem is whether or problems are politically solvable. Real logical assessment would probably tell us what we could do to turn the corner globally. The resulting society might not look anything at all like the current society but we could avoid large scale die off and eventually bring our population and our ecological footprint back to a reasonable size.

But it is the political impossibility of such an act that stops us, not the technical aspects. Collectively, as scientists and engineers I am fairly certain we could find some workable future, even if it bore no resemblance to the current one. But as homo sapiens in the raw I don't give us much hope of getting past our baser instincts.

That market hologram really has Cheryl captivated, trick of light as it may be, perhaps it can fool some people all the time. Seeing as confidence is lacking for most, the suspension of mark-to market must have also dampened the propagation of a classic deflationary resonance wave between the leveraged ratios of banks' marketable assets as denominated in the currency they emit and the volumetric contraction of such currency in circulation.

In other news, the soiling of sympathy was a roaring success this year, as a formidable sacrifice was offered unto He who walks behind the Markets, so as to appease His appetite and temper His mighty wrathflation, for He was much displeased with our recent defiling of the equities. After dispatching dullard care, to everyone's delight Ahnuld gave a brief but colorful synopsis of the expedient californian liquidation, then there proceeded much merrymaking and the naked running through the woods.

It's been 12 months since Prechter started warning about a market collapse (his first warning was mid August 2009). Still no collapse.The birds still chirp and the S&P500 still yields bountiful dividends and capital gains.

TAE's market calls began in early October 2009. Nobody's timing is perfect. But still, after a year, one begins to wonder if the prognosticator is looking through the wrong end of the telescope. Hint: if the worldview is collapsing rather than expanding, then you need to flip it 180 degrees.

Since those dark days of August-October 2009, our markets have climbed higher. After 12 months, we're higher than we were when Prechter and TAE first started warning everyone to burrow into the mud to escape the imminent financial apocalypse. The apocalypse came and went back in 2008. Our markets have moved-on.

My husband says our financial markets are sweaty and resilient. They're working hard for us. Don't throw sand in the gears; Grease them with your dollars.

HDPBut what struck me more is that farms have existed on this continent for millenia. North of the Rio Grande FWIW.

Yeah.... Thanks for the perspective. I got carried away by "1632." It's a matter of scale, isn't it? The other day I let slip in conversation that I was a short term pessimist and a long term optimist. When someone asked what "long term" meant, I realized I meant several million years. ;-)

Ric2But the real value, I, as a human, create, is when I go to work for vegetables at a local permaculture/orgnanic small-scale farm here in rural Maryland about 15 hours a week while trying to learn as much as I can about growing food in the Mid-Atlantic for as long a possible season.

About 18 months ago I got a job on a small-scale, brand-new farm run by a man and wife who sold produce in the markets and restaurants in the area--I volunteered about 12 hours a week and worked extremely hard and didn't even ask for vegetables and absolutely loved the labor--truly loved it. I wanted to learn and they enjoyed teaching.

They were interesting, resourceful people--and I gave it all I had, up until the moment they fired me. I was completely stunned. Only later did it dawn on me what had happened. In my naivete I had opened my mouth too much. They weren't farming because industrial civilization was collapsing but because they loved doing so and had the money to do it from selling their house at the peak and had parents who they hoped could catch them if they financially fell. They fired me because of what came out of my mouth--too much cognitive dissonance. It was hard for me to understand how grating I was to them. (Though I suppose you guys have no problem understanding this. :-)

Despite my work, I wasn't worth the free labor. Very humbling. RC on this board had warned me about this when I started. "Don't give your opinion, even when asked!" he told me in an e-mail. Man he was right.

And here is a follow-up comment below it. As to content if not style, Prechter could have written it. I find it a fairly plausible explanation of Fed intentions. Another one could be that all 12 of them got so excited at their last FOMC circle jerk that they forget to take their lithium. (Hmm. Maybe that is why we invaded Afghanistan. A trillion dollars of lithium resources to feed the Fed.)

If this explanation is correct, the Wile E Coyote moment of the S&P500 is about to end. As a privately held corporation, Prechter always says that the Fed's first allegiance is to itself.

by davepowers on Tue, 08/03/2010 - 11:11#501198

'In order to save the village, we first had to keep it hopeless confused' seems to be the order of the era.My take = when the crisis first got cranked up, Bernanke and Fed truly believed their own press, namely that they could save the world. Hence, Bernanke's scheme to pay interest on reserves which, per Ben, would allow the FED to infinitely expand its balance sheet. This sounded powerful, but it was largely window dressing. The 'money' to expand the asset side of the balance sheet (buying and supporting the MBS/GSE market) came from the 'money' flowing onto the liability side of the balance sheet (skyrocketing reserve deposits from the banks who were off loading the MBS/GSE. Rather than constituting 'printing' this exercise was simply polishing the banks' financial statments in order to allow them to 'raise capital' at a time when the Treasury and FED realized they needed to do that. A financial statement loaded with 'money deposited at the FED' looked a lot healthier than one loaded to the gills with MSB/GSE paper. To this extent the operation was 'mission accomplished' to some degree.But when the FED got a look at the crud now loaded up on its balance sheet, suddenly 'infinite expansion' didn't look like such a great idea. So QE 1 ended. Now, however, the FED is shifting to self preservation mode and is flailing around for means to offload the crud back onto, well anybody, but the banks will do for starters.FED self-preservation will trump efforts to save the world, resurrect the economy and what not. Like most all organisms and organizations, an engaged self preservation instinct will trump all other motives.

These images, by photographers of the Farm Security Administration/Office of War Information, are some of the only color photographs taken of the effects of the Depression on America’s rural and small town populations. The photographs are the property of the Library of Congress and were included in a 2006 exhibit Bound for Glory: America in Color.

"The economic recovery in the US has stalled and for the 15 million unemployed Americans, the land of opportunity seems anything but. Almost 50% of the unemployed have not had a job for at least six months, double the level of previous downturns. Newsnight's Peter Marshall witnessed the effects in Nevada - the state with the highest unemployment level."

@CherylYou should read more of the diverse material here, different deflationary perspectives are not all based on Prechters insights.

"Our markets have moved-on."No, they've passed on, to greasier pastures, but the current state of embalmment can be misleading, so lifelike. That's the real scam, right there, making you and your hubby believe the markets are still your domain, working for the convenience of the little people's profitability.

Of the prevailing economysteries, one is particularly important in this context; soylent green shoots are made out of people. If one knows this to be true, haplessly flinging your labors into the grinder and greasing the gears of the gristmill seems a shortsighted and almost immoral act, somewhat akin to a cowardly collaboration, and becomes unconscionably hazardous when you can't accurately time movements because of wholly falsified price signals.

I was wondering when llargi was going to use a pin on the bubble Cheryl is in.You may invest all the capital you and your husband have in this "sweaty"market,sweety,as for me,I believe firmly in "The Bank of the Green Sock",as well as tiny gold coins,...and things I can touch...like fruit trees.Lots and lots of fruit trees.Kiwi plants,

Your mileage may vary..

pfh,I have been called many things over the years,but "fatalistic soothsayer"is a new one. Soothsayer,is defined as one who prognosticates by magic,or intuition...a fortuneteller.

I have to admit my general attitude is fatalistic.I am wise enough to be very careful when I pick a fight,chose fruit,or trust people.I spent years doing emergency response.This can lead to somewhat fatalistic attitude.And,having figured out how the political game is played here and around the world has given me a grim understanding of what is most likely coming down the pike.Its not pretty. I understand Ric...I know exactly what hit you.Its the same problem you run into w/all business folks when you talk of "crash/dieoff".......Business people are inherently optimistic.The KNOW that their gig will prosper and grow...That's the reason they are in business...with you being a "down"to their world view.....[!]

I have stopped talking to just about anyone outside of the 'net and family.I have a few friends who know my head-space,and that's fine.I stopped feeling the need to justify my worldview a while back when reality started justifying it for me a while back. Katrina was a wonderful thing in giving folks like me a excellent example of why you had better be ready to look out after yourself when thing get hinky.

Look. Whenever any central bank creates new money and whenever any entity (individual, business or government) takes on more debt, the outcome is inflation. As Milton Friedman once said, “inflation is always and everywhere a monetary phenomenon”.

Today, under our fiat-money system, governments are willing borrowers and central banks are more than eager lenders (money creators). Under these circumstances, a contraction in the supply of money and debt (deflation) is out of the question. Conversely, given the short-sightedness of the politicians and their perpetual urge to ‘kick the can down the road’, the real risk facing the economy is extreme inflation or even hyperinflation.

Business people are inherently optimistic.The KNOW that their gig will prosper and grow...That's the reason they are in business...with you being a "down"to their world view.....[!]

For some reason I don't have your good sense and haven't stopped talking to people outside my small circle--perhaps because I generally don't have to pander to students and rarely talk to administrators. I should have known better with the farmers, but when I think about it now I realize I'm better off gone, as people who are so unprepared are dangerous.

I'm finding a lot of people are becoming interested in reality. I meet a lot of teachers (civil servants) who are shellshocked by the California budget layoffs/furloughs, etc. 80% of part-timers like myself in my college are already gone--and those who remain have a frantic look about them. In this situation, most everyone seems to appreciate "sanity"--(The only people who don't are those who want to make money from "insanity"). But people have to fall out of the tree first and I fear for that farmer couple--they have two little babies.

My colleagues will often talk realistically about the economy and then say something like, "I should be more optimistic."

At this I become infuratiated and say: "If a tree falls into your house do you stand there and say you'll be more optimistic! You get to work setting it right! Forget being optimistic. Give up hope and you'll feel better. Act like an adult! We've seen nothing yet and your family needs you!" (Maybe this is why I'm not invited to parties....)

The other day I was distressed by something stupid someone in my immediate community did and my wife had an interesting response. She's the perfect person to watch your back in a battle because she's so level-headed. She's also highly respectful of others and respected by people who work with her, which is why what she said surprised me. About working with other people in a community, she said: "Work hard, expect nothing from them, and pull your own weight!" It's why I married her. :-)

It was hard for me to understand how grating I was to them. (Though I suppose you guys have no problem understanding this. :-)

Despite my work, I wasn't worth the free labor.

Yep. Worse yet for me. Because people can't stop mentioning the border, I keep reminding people that those pardoned after 2000 for Iran Contra are now manning key defense/state dept positions. Most people stateside believe IC was a boring "political scandal." Try convincing them that all border wars are their tax $ at work for a training exercises soon coming their way. The trick is in realizing they deploy the same "currency" but we all know most usakistanis are not gifted at following $ don't we.

On the phone, heard a dear lifelong friend tell me how she's going to get a mortgage on a farm today. Thinks her pension will be there for her. When I said that for her to be talking about debt proved she lacked important information, she suddenly had to attend a meeting.

What allows a more complex pyramid to last for longer than a simple one is a supplementary source of funds to pay members, besides merely the buy-in of newer members. The more such sources there are, legitimate and otherwise, the more complex the pyramid can become and the longer it will last, as the apparent on-going success of early entrants will attract many more new ones. There's nothing like seeing one's friends and neighbours seemingly making a lot of easy money for a long time to eventually overcome the mental defenses of even the most skeptical.

Following the collapse of communism in Eastern Europe, there was a spate of such schemes - notably MMM in Russia, Caritas in Romania, Jugoskandic and Dafiment Bank in Serbia, TAT in Macedonia, and VEFA Holdings, Xhafferi, Populli, Gjallica and several others in Albania. They were the topic of my academic research at the time. All of these lasted for quite a long time, and some paid out spectacular returns for much of that time. For instance, the Albanian funds , or quasi-banks, began by paying out 3-5% per month over a 6 month term and were eventually paying out 10% per month (and briefly much more as an interest rate war ensued very late in the game).

They were able to do this temporarily because the income from the buy-in of new entrants was supplemented by revenue from drug smuggling, oil sanctions busting, money laundering, gun running, human trafficking and a thriving trade in car theft from across Europe. There was some revenue from legitimate business interests, but not much in a country that survived mainly on a combination of remittances and politically supported criminal activity. Ironically, Albania was the darling of the IMF at the time.

Over time, approximately 80% of the Albanian population was drawn into the pyramids, often selling their only real property in order to invest and then depending on the pyramids for all their income. When the inevitable happened, the vast majority of the population was completely dispossessed. Although many had realized that there was something too-good-to-be-true about their 'investments' they had succumbed to greed "in the belief that they were in the hands of properly structured criminality", as The Guardian newspaper put it in February 1997. The population believed, erroneously, that there was an implicit guarantee from the government, which was conspicuously and intimately entwined with the activities of the various funds.

Cheryl and her husband are enthralled by the "properly structured criminality" of the equities markets.

Cheryl - those people in the Eastern Europe ponzi schemes Stoneleigh studied were making money (before they lost most of it). Most never saw the inevitability (due to the Ponzi-style structure) of the collapse of the schemes in which they had invested. They thought the "too good to be true" could go on forever. I fear that describes you and your husband.

I may inaccurately recalling your comments from months ago, but I remember your tone was more of "Stoneleigh and Ilargi are way early in their call for a major decline in the stock markets. There is still money to be made. My husband and I are going to stay in these markets, and we are nimble enough to get out before the upcoming crash."

Now it sounds like you think there is no major leg down coming with your remark "the markets have moved on."

To borrow from Charles Hugh Smith, you are making the argument "It can't happen because it hasn't happened." That is magical thinking. You are choosing to ignore an obvious reality and it sounds like you are trying to convince others to ignore this obvious reality by catering to their greed.

As one of the occasional soothsayers hereabouts, I feel a sudden impulse to say some sooth on the subject of Cheryl. Some things just can't be left alone.

She cometh forth to announce before the assembled throng that "our financial markets are sweaty" and also that they need "grease". Adding to the lubricity of the moment, she made the sullen crowd privy to the previously unsuspected nature of the heroic figure known only as "husband". That he be "a professional money manager" and that "he brings home...bacon".

That last bit may be a false clue to throw us off. The totality of the clues seem to lead to an inference that she is none other than Mrs. Blankfein. Sent forth apparently to grease the shute for Lloyd to dump some more slop on us.

Whatever the truth may be, she has definitely accomplished something previously thought to be even more difficult than squaring the circle. To wit, as a pump monkey, she has managed to make Jim Cramer and Larry Kudlow look like sane and sentient beings. No small accomplishment.

I have not yet shared my beliefs on the economy/peak oil etc. with them at this point.

I am lucky in that they are a partnership - a retired USPS rural letter carrier and a kid about 2-3 years out of college. The retiree owns the 12-acre farm outright and she has been doing permaculture and organic gardening/farming for decades. There are several wells and springs on the property and she just had a major PV system installed on the main residential structure. I am trying to convince them to let me try to get a homestead-scale gobar gas system built near their donkey pen. The kid is the farm manager. He's got some student loan debt, but I pointed him to ibrinfo.org last year so he's converted it all to gov debt and has reduced his repayment installment amount drastically as he hardly has an income. (We currently have about 13 members in the CSA and we go to a farmers market every 2 weeks. Not a whole lot of cash coming in but they have easily covered their fixed costs and they are paying themselves something that appears to be livable.) As part of the partnership he does however, get to live at the farm. We are thinking of forming a non-profit so he could become an employee and have his remaining student loan principal/interest forgiven after 10 years.

They are mellow, cool, fun and not under a lot of financial pressure. I am doing my best to fit in and will remember to keep my doomier thoughts to myself.

I don't know why people get upset about Cheryl. First of all, he/she is most likely a troll. After all, who would bother coming here to play contrarian if they truly believed her professed position? ZH gets drive posters like this all the time - they like to tweak people just for the heck of it.

However, let us assume her husband really is a money manager. Given the actions and clear signals the Fed has sent over the past 18 months, why isn't the stock market a good place to be?

We just had Greenspan telling everyone that the stock market is the most important indicator available. As long as the Fed has power, it will continue to gun the market to new highs.

The only real risk is trying to determine if/when the Fed wavers in this task. I've always thought it would be the Nov elections. It just seems real hard to imagine that current policy decisions are going to remain in place.

So, yeah, perhaps it is wise to ride the tiger for the next 3 mos. Just be acutely aware of the game of chicken you're playing.

@ Board--re the discussion of what to hoard as money--gold or silver or solar panels. I'm thinking of getting pints or fifths of liquor that store well with near infinite shelf life. I don't drink the stuff myself (I could never store so much red wine!), but would that be good barter? I've been dithering.

"The only real risk is trying to determine if/when the Fed wavers in this task. I've always thought it would be the Nov elections. It just seems real hard to imagine that current policy decisions are going to remain in place."

I think our kind hosts have underestimated TPTB ability to stall off the inevitable by monetary and fiscal intervention. Admittedly, the pissants will pay a very high price for kicking the can down the road a bit, but hey - we are pissants.

They have prolonged the Wile E Coyote moment for a year and counting, at least in relationship to the equities market. But, the way I see it, the end game is rapidly approaching. The jugglers have too many pins in the air now.

But why November, Snerfling? I never figured the Fed for a bunch of dyed in the wool Democrats. Ben got his re-appointment. That Obummer will make a second term is quite a long shot. Maybe Benny made a deal with the O-man for his re-appointment, but if he welches, will the CIC take him out with a predator? I would like to thinks so. Makes good drama.

Just got an unsolicited phone call from Giant yankeE Finance, HOWS THIS ?

SALES PERSON: Good morning Mr Glennjeff, we are just ringing to check on your welfare and whether everthing is going well for you. We wish to assure you that you have our support in life and if there is anything you need you can always rely on us and our ongoing commitment to providing your capital needs.

I was polite and said I'd keep that in mind, thankyou very much.

Next they will be doorknocking, after that, home invasions with a crew of Blackwater boys.

There is no question that central banks can increase the money and credit supply by increasing debt. Just as there was no question that the bilge pumps on the Titanic could pump water from the inside of the hull to the outside of the hull. The question remains the relative rate of CB inflation to debt collapse deflation. I think that the hole in the multinational financial Ponzi is a lot bigger than the bilge pumps.

Arch Crawford was/is predicting something a lot bigger than the list you presented. As Ed Sullivan would have said, "A REALLY big show." Like the Permian extinction event or a supernova in our back yard. I'm not disappointed. I have enough excitement in my life and I am not intellectually or emotionally invested in astrology. I give it until about the 10th before I write it off.

Well, Arch said they ran the computers backwards for 10,000 years and couldn't find anything comparable in dismality. (OK, I invented the word, but I like it.) But I am prone to hyperbole in the quest for humor in a jugular vein (as the 1960 Mad Magazine masthead would put it).

If Arch is to be proven right, I would put my money on Israel attacking Iran with very unfortunate unintended consequences.

Bigelow said..."Safe as houses Compare countries' house-price data over time The Economist"

NZ is pretty scary on that chart... and that is one of the reasons I am waiting to buy land – NZ is hellishly overpriced, no matter which way you work it. Against average income is the worst however... there is one issue with this – it probably doesn't take into account all the unemployed when calculating average income – that would make things look even worse now in almost all countries.

My husband is a professional money manager. He also brings home the bacon.

Really? So if the "money" disappears so goes the "bacon" with it eh?

I've never really paid that much attention but on balance your "point" always seems to start with "my husband says/said." After your 3:11 PM thing -out of the blue I suddenly got to wondering if your his stenographer or something.

I'm watching Generation Zero again and I must say it pretty well seems to describe the selfishness of the babyboomers that I and many (if not most) of my peers know. Not that it's the babyboomers' fault really... they're just a product of their environment, as Strauss, Howe and Kondratieff say. The documentary omits this detail for some reason.

The documentary doesn't mention the good things that that generation did, but at least in Finland that amounts to about zilch, unless finlandizierung is what is meant. It might be different in America but hey the country is so vast so at least one or two good things have to come out of a basically hedonistic generation which didn't care about what was before them or what would be after them.

Regarding the things the babyboomers didn't do: for example, they were confronted with Limits to Growth and they decided to ignore it. OK, they had demonstrations, but if you want to change society, that's really done with banking regulations and law as well as institutions.

How did they conduct their discourse with other parts of society? Basically their starting point was that the other guy is the devil. Not very constructive if you want to get somewhere, is it (unless the other guy really is the devil, which is simply very unlikely)?

I'm not sure why the message is undermined by the fact that Newt appears on the documentary. Isn't that a straw man attack?

Regarding what mistah charley, PhD, mentioned about the desire of Citizens United to buy government, that's of course rather suspicious. If you combine this with the fact that they seem to understand how society works, it doesn't look good.

PS. Is the 13/34 EMA for SPX acting troppo? Is it being manipulated while summer volumes are low?

A small update on Generation Zero: at the end of chunk 8 it says that the whole thing is a Greek Tragedy, i.e. the baby boomers could not have behaved differently. They were a product of their times. IMHO this should have been emphasized at the outset in order to avoid misunderstanding.

Squirrels store nuts for winter. Hardly Lots mate. (by western standards, true I'm a filthy rich pig by developing countries standards - most westerners are actually). Don't confuse a AAAAA credit rating and some savings with undue wealth, I've recently inherited some money, paid of a huge pile of credit cards, (which were a huge struggle to service), that I used to build my lifeboat and I'm stealthily aquiring and storing some nuts for winter, and the bastards are doing everthing in their power to tempt me back into debt in an attempt to stip me of assets when it all falls to pieces.

They are targetting anyone they can with a good credit rating and some real estate/debt servicing ability because all the loser loans have dried up and landed people in tent cities and under bridges. And they are getting desperate which may mean the whole house of cards is about to fall down.

I feel no guilt about being comfortable with my preperations for old age.

You want some help, heres some advice, get rid of debt, stay out of debt, never borrow money (unless youre going into business and your on a definite winner), do anything in your power to not use their financial trash, do anything in your power to undermine the global financeing cartel (Ghandi style passive resistance of course) eliminate consumption wherever possible. Don't expect a free ride anywhere, I never got one until my parents passed away, and by then I had almost reached the summitt under my own steam.

Some of my nuts are being used at the moment to triple glaze my house, double insulate the roof, install solar power, all of that will reduce my energy consuption (fossil fuel), and reduce my ongoing costs.

Some of my nuts are being used to ensure I have my own food supply with a hybrid organic/hydroponic/industrial garden, and reduce my ongoing costs.

Today I used some of my nuts to rennovate my tile roof which was getting critical, and the knees and shoulders are throbbing like hell, I'll give up cheapish red wine (which in Australia is great wine)and Oxycodone after I finally finish the lifeboat and the aging bones can heal, which is about a month away.

I've been on a very restricted diet, given up coffee, cigarettes (grrrr) and pot, no longer use a motor vehicle, barter with friends regarding garden produce, skilled labour. I have only small change (hundreds) in my bank account, which is only there to service the steady drip drip drip of fees, for instance, you cannot buy an aircraft ticket in Australia without a credit card. They wont take cash.

I'm perfectly capable of putting my own nuts to work thankyou.

I suggest you ask the arseholes that run the global banking cartels for FREE capital, I'm sure their reply will be far less polite than mine.

THINGS ARE STARTING TO LOOK REAL BUTTERFLY EFFECTY, I'm not sure anything will save any of us to be frank.

Actually Tero, I had just finished writing about the Gen Zero thing but decided not post it because it was a bit of an off the cuff rant based upon your comments, but what the hell - next post.

What have the current lot of politicians, many Gen-X done, nothing but make matters a whole lot worse IMHO.

Look at the 2007 landslide victory of the Rudd (Gen-X) Labour government in Australia, which ran on a couple of big issues, one of which was to do something about carbon emmisions. What did they do - they tried to do virtually nothing (5% cuts by 2050 or sumnt stupid, and what they ended up doing was ABSOLUTELY NOTHING except pump up the infrastructure for exporting coal, promoted paid parental leave and hand out cash to 15 year old girls having babies, encouraging baby production etc.

What has X-man Obama done - NOTHING, except try to keep BAU going and getting a Nobel Peace Prize for being the incarnation of The Antichrist in charge of The War Machine (metaphorical)

These politicians are on the take liers, thieves, grifters and mass murderers.

Decent people can't just pick up a sniper rifle and assasinate these demons or form lynch mobs in the street, decent people can't bomb coal mines and toxic chemical factories, decent people can't sieze control of the media machine by force.

All we could do was lie down in front of bulldozers, chain ourselves to trees, march in the streets waving placards and maybe get shot at by the national guard or baton charged by police or bashed by rednecks.

"Satan" (metaphorical) is in charge of the planet, what are the young people going to do about it, point the finger at us old farts and say "it's your fault", THATS NOT VERY CREATIVE and will achieve NOTHING (once again).

Read the Book of Revelations and some intelligent commentary on it, SAME PROBLEM FOR 2 MILLENIA AT LEAST.

So, what are you youngn's going to do about it? It's YOUR TURN. When was the last time you guys got persecuted, bashed or shot at.

We are going to have to go through massive dieoff and infrastructure decay / destruction and hope that there are a few usefull bits of stuff lying around to start again.

Start preparing for the same bullshit a few millenia down the road. (Except there will probably not be enough stuff lying around)

As another Australian PM (Malcolm Fraser) once infamously said "Life wasn't meant to be easy".

Good point. I suggest we Gen-Xers roll our sleeves up and start making things happen. It's not that anyone will ever remember us for it (and we shouldn't either), but no-one else is in a position to do what must be done.

Not that we can make the whole thing alright. It's not just an 80-year cycle that's coming full-circle, but also the 10,000-year agricultural cycle as well as the 300-year energy cycle. It will be hard to fix all of these.

However, I promise you that I'll do my best to make things alright again. I've made the same promise to my kiddies.

Glennjeff, what do you think of the "suntanned bloke in an open-necked shirt, the natural-born democrat solemnly enjoying an ice-cream, with his kiddie strolling beside him" from Donald Horne's Lucky Country? Is it still like that over there?

Just think of how much more the Fed will expand their balance sheet, and how much more debt the government will take on, and how many more programs and policies will be conjured up to paper over the losses and instill confidence, all to prevent that very thing from happening.

Who's to say we aren't several years and many many trillions away from TPTB losing control of the situation.

How about August 2012, Fed balance sheet = 7 trillion, ongoing 2 trillion+ deficits and stimulus, with the S&P at 1600, and TAE web traffic down by half since many have decided you're a bunch of crackpots still yammering about the deflationary collapse that never happens.

I felt it useful to transplant this interesting comment from ZH to here.

by Rebel on Tue, 08/03/2010 - 19:37#502098

I used to live in the start-up world in Silicon Valley. Many of the uber-rich venture capitalist I know are doing exactly what you are describing . . . building compounds in remote areas. I see them taking fairly extreme measures to prepare for what they must perceive is happening.

I now live in an area where the average income is probably around $15K per year. Yesterday, I needed to have a heavy item moved from a storage shed about twenty miles from my house, to my house. I was driving around, and saw a Mexican loading a lawnmower onto a trailer after mowing someone's yard. The trailer looked like it could carry the item I needed moved. I stopped and asked him if he would move this item for me. He said he would do it for $50 (using his pickup and trailer, 40 miles round trip.) I gave him a $50, and keys to the storage shed and told him where I lived. I went home, and about an hour later he showed up with the item, and two other men to help unload it. After he unloaded it, he commented on my little flock of 10 chickens. He said he had 250 chickens. He did not feed them, but they did fine scavenging for food. He said he did not have time to fool with them but gave eggs to all his friends, and sold eggs for $1 a dozen to anyone who wanted to buy them. He also had a large garden, and he has a set of scales at the entrance and a money box. He lets anyone come and pick anything they want for $1 a pound, and on the honor system they leave the payment in the box. He said that he did not think anyone was cheating, and felt like most people were leaving extra money in the box. He also sells produce from the garden to local supermarkets. The garden is fertilized with the chicken droppings, and watered by a windmill and simple irrigation system. He also had some pigs, and he fed them the excess from the garden, and if pickings were slim for the scavenging chickens, he would give them excess from the garden. He said he worked 12 hours a day mowing grass for people, but on most days he comes home to more money in the box from his garden than what he makes mowing. He also said he has a fruit orchard, and is starting a pecan orchard. He is doing all this on 10 acres that he owns free and clear. He said he had not bought food from the grocery store in the last 5 years. He also sad on the weekend he makes up food boxes with his eggs and produce and delivers it to needy old people in the area.

I found this man fascinating. He had no formal education, had never heard of the Fed, and was completely clueless on the economy. He was not preparing for a collapse or disaster, he was just doing what he has always done, and that is to provide for his family, and others in the community . . . and yet, he is probably the most prepared person I have met.

Should things collapse, I think many of the uber-rich will be OK, as they clearly see the mess that is coming, and are making arrangements. At the same time, many of the people viewed as being low in the socio-economic scale will be OK because they have relevant skills, and know how to take care of themselves. It is the vast number of people in the middle that I think are in for a reckoning. People who don't know how to do anything but shuffle paper or sit in front of a keyboard.

Tero said, " ...they're just a product of their environment.". " They were a product of their times."This is true, this is universally true of all generations.I look back on " my times" and recall endless discussions about women's lib and whether to wear a bra or not. It all sounds so quaint in current context of an extinction threat.I pay tribute to Elvis who dared to move his hips! I did experience liberation in casting off the prerequisite, immobilizing girdle of the 50's.I recall the moment when I snapped out of the Obama trance during his campaign. It was precisely when he opened his arms wide and said, " I am going to change the world"." Oh no, please leave my heart and mind, my country alone. ", I thought from my far away Canadian perch.And I've been watching him change the world ever since.To be fair to the man he didn't promise to change it for the better. The better part was a mass assumption made in a trance state.Personally I feel a connection with several generations. If I can offer any wisdom to any generation it is this- Beware the savior.

Not specifically familiar with your literary reference , I'll give you a mix of what I know and what I intuit.

The population is not as fit or as healthy as that aging sterotype suggests, and wearing an open neck shirt will give you sunburn in thirty seconds in the southern latitudes. we are still a fairly "easygoing and down to earth" people, but violent crime has been slowly creeping up, especially in the eastern states.

we tend to be light on the surface as an act of comaradery and carry the deeper responsibilities quietly within. Traditionally if we need to make a point we would phrase it as a joke or jibe, I'm not sure if that applies to the Y generation as online social networking has really changed the experiential parameters for youth, many parents I know are having hell rebellion problems with their teenagers, especially the girls which have gone feral.

We have a healthy democracy in the sense that people are well looked after and our administration is certainly a lot more user friendly than those in many other places appear to be.

The media is very informative if you look for it, and tends to err on the side of trivia for trivia's sake rather than trivia to mould the perception of the masses.

We are a little troubled by the electoral decision we face in a couple of weeks, more so than I can remember since the mid 70's. I think we are feeling a little betrayed by the major political parties and expect this election to yield a paliament in which The Green Party hold the balance of power in the senate, and they have some good ideas, but getting traction on those ideas will be difficult as it means diverting finance away from established "power centres".

We basically missed the GFC, unemployment went up a few percent, and there were mass layoffs for a couple of months but we recovered rather quickly. House prices dropped 5% for one quarter and then rebounded (and they are crazy in places).

Retailers tell me that the discretionary part of the economy is still a bit depressed other than that we're doing quite well.

The huge fiscal stimulus in China probably saved our butts, that is now drying up. I expect we will take a dive this time if we get double dip recession / depression globally, which looks certain at this stage.

Recent shipping reports (think BDI)from one of our major coal mining ports, Newcastle, suggest the exports may have turned downward sharply in the last two months. Which probably means China is making less steel which will flow on to our iron ore industry.

Central interest rates, rising all year, have finally ceased so we may be cooling off a bit.

Our financial ledger is probably the best in the world and the Reserve Bank and Treasury are very prudent and cautious. That really helps. Having said that I think our credit card debt is one of the highest in the world (per capita), apparently we are also one of the most obese nation in the world, that blows away the Bronze Aussie sterotype.

I suspect that we will be the last to fall and we may not fall as far initially, but hard times are a coming globally. I feel no nation will be immune, and I'm not sure that old stereotype, which was most resilient in hard times, is still dominant, mass media and having it really easy for the last 3 decades has possibly softened many brains.

Was thinking likewise. Should hubby's $ skills come short, she can get a job in one of those big black mystery boxes around DC... if not already the case. Wasn't going to mention it, have learned it's better not to feed trolls.

@ Tero

Just a question. Were all the poor blacks part of Generation Zero? Spoiled brats? Where does the south fit in? Did they ever show much footage of non-white usakistan? Indians?

@ anyone

Been giving a lot of thought to a parallel "black" economy of trade. Was the stated goal of I-C, to establish a parallel "off-books" economy and I think they've done extremely well. How do guns/drugs interact with the straight, known economy covered in our TPs of record? Are not entire armies funded this way? What else?

Greyzone (and pfh)- " Collectively, as scientists and engineers I am fairly certain we could find some workable future, even if it bore no resemblance to the current one. But as homo sapiens in the raw I don't give us much hope of getting past our baser instincts."

In the scientific tradition; could you please present me with some (ANY) evidence that "scientists and engineers" are in any respect different from "homo sapiens in the raw"?

Gotta tell ya; having sat through endless department meetings, annual society meetings, and board meetings for a conservation 501(c)3; I'm unaware of any such evidence. Zero. Nada. Zip. Bupkis. Zilch to the 10th.

:-)

I'll reiterate my aphorism; "Logic is the opiate of the educated."

Or, as an alternative; do you have evidence that logic/reason alters human mass behavior?

I'm responding here because just this morning I ran into this, on BBC Science:

Your argument is that the Fed can stave off deflationary collapse indefinitely by buying Treasuries and toxic waste at 100 cents on the dollar.

The Fed is a privately held corporation which through an act of perfidy in 1913 was allowed to usurp the Usakistani Congress constitutional monopoly to mint coin. Technically they are not printing money, but rather issuing debt through these purchases. Hopefully theTreasuries are currently somewhat less toxic than the crap they bought from the primary dealers. So your argument is that the Fed can suck up all the private defaulting debt onto its balance sheet, and this expansion of the Fed balance sheet can go on for ever.

The answer IMO is that Usakistan is dependent on imports for a huge variety of things, particularly energy. If the world's so called reserve currency is viewed to become worthless through the Fed being bankrupted with bad debt, then foreign countries will refuse to export valuable commodities to us, and we cannot afford to invade all of them and steal what we need. This will accelerate the deflationary collapse through a positive feedback loop.

So your argument is that the Fed can suck up all the private defaulting debt onto its balance sheet, and this expansion of the Fed balance sheet can go on for ever.

Not forever, but perhaps far longer than anyone here thinks is possible.

After all, the Fed is what.... a trillion or so into crap mortgage paper, and what has been the result? You'd think treasuries were iPhones the way they've been flying off the auction block. Seems to me it's worked like a charm, so far.

So why wouldn't it work for another trillion? And a few more trillion after that?

How about August 2012, Fed balance sheet = 7 trillion, ongoing 2 trillion+ deficits and stimulus, with the S&P at 1600, and TAE web traffic down by half since many have decided you're a bunch of crackpots still yammering about the deflationary collapse that never happens.

Explain why this scenario won't/can't happen.

Because the music stops playing before August, 2012.

And since there's only one chair left . . . when all the pigs make a dash for it, it simply won't hold the weight.

I think Greyzone was being resigned to the fact that logic won't work. Stoneleigh is clearly in the herd camp, and here is a book on herd behaviour, for those who don't think technocrats will save us all.

Kurt: "So why wouldn't it work for another trillion? And a few more trillion after that?

This could go on a long time, could it not?"

Sure. Wanna bet on how long?

:-)

Wanna bet- everything?

We actually have a brilliant illustration of the probabilities, in our very immediate past.

Anybody remember the "Flash Crash"? By pure chance, I was actually monitoring the market, at those exact moments; I watched it crash, second by second. Yeeeha.

The greatest probability for the cause, by far, is that it was actually a panic. All the other "fat finger" type explanations did not hold up; not one of them.

Seems to me to suggest, very very powerfully, that a great many traders now participating are actually expecting an imminent crash. They're gambling, is all. And highly willing to liquidate, at the first sign of a real downturn.

It took almost nothing to trigger that panic. The longer this fantasy stretches out, I would bet that it will take less and less to trigger bigger and bigger panics. Because, as we all do know- the emperor truly has no clothes; not a stitch.

And what if the crash happens when you're on your annual bimbo safari in the redwoods? When you're unplugged from it all; for just a couple days?

Prit-ty scary. Maybe we should be monitoring the medical complaints from CEOs. Lots of strokes and high blood pressure? The end is nigh!

T-Bills are not paper. They are electronically recorded. Every buyer is recorded, even if the Fed chooses to not divulge that information.

"Bearer bonds" were stopped more than 2 decades ago. The number of bearer bonds remaining in circulation is so small compared to the overall US debt that they are, essentially, irrelevant except for smaller nations that might see such a windfall as useful to themselves. But in the context of the US, the world, and the overall debt load, US government bearer bonds are practically non-existent.

So please tell us what authority tells you that no one knows how many T-Bills exist. I am curious where such information starts.

"According to a CNN/Opinion Research Corporation survey, more than a quarter of the public have doubts about Obama's citizenship, with 11 percent saying Obama was definitely not born in the United States and another 16 percent saying the president was probably not born in the country. ...

"The CNN/Opinion Research Corporation poll was conducted July 16-21, with 1,018 adult Americans questioned by telephone. The survey's overall sampling error is plus or minus three percentage points."

The "fat finger" hypothesis is ridiculous of course. There are two viable theories. One was put forth by Cognitive Dissonance, a contributor at ZH whom I hold in high respect. He suggests that it was done intentionally to show Congress critters that they have total control. It happened on the same day that something very critical in the so called Financial Reform bill was being voted on. Shortly after the flash crash, the amendment was defeated in favor of the banks.

The other viable theory is that the bots panicked. When the market got too volatile, they shut down, and the market now has no liquidity except for the pseudo liquidity from HFT which can be withdrawn in ms. Since the bots stopped buying, the legitimate offers kept falling in price.

However, I agree with you that the crash, when it comes, will resemble a fire in a theatre. It may be unplanned or it maybe preplanned by TPTB to wipe out the pension funds (and Cheryl).

See, none of that would actually prevent deflationary decompilation of the economy in the interfraudulum by the continued gravitokinematic diffusion of liquidity gradients, these antics would only temporarily distort the optical effects of price collapse on a select group of privileged assets under minor load-bearing strain, which could only generate the required economotive integrity by productive and confident functioning of monetary multipliers as once existed.

You're making a cardinal error in your analysis of the Fed and the $. You assume that the Fed's powers to inflate are constrained by the potential loss of reserve currency status for the $.

That's simply not so, old sport. Currencies are a relative game. The Fed, the ECB, the Bank of Japan, and the Bank of England can all inflate their balance sheets more or less in unison. The game stays the same, no harm done. The $ remains king and my drug stores remain as busy as ever. If you're still confused, my dear friend Nick can explain it to you. He's in the bond business.

Have gin rickey and relax, old sport, and do drop by the house on Saturday night.

"However, I agree with you that the crash, when it comes, will resemble a fire in a theatre."

Or a stampede at a loveparade, with the exits blocked. Herds can be frighteningly forceful.

The deadline for a disintegrating threshold is sometimes intuitively established, like knowing exactly when a game of jenga cannot possibly continue upwards. Most loadbearing bottom blocks have been maximally displaced by now, and the players dare not cause even a minor tremble. http://en.wikipedia.org/wiki/File:Jenga.gif

Funny, I reread the first half of your biography last May. Stopped in the middle when everyone got so depressingly crazy. Switched over to my Bloom County collection to chill out.

As to the content of your (rather patronizing) remark - I like it because there is nothing I like more than a free lunch. Fed monetizes the debt and everybody is happy and nobody gets hurt. We sail back into prosperity otra vez. The dispossessed of the earth move back into their abandoned McMansions. Jeez, why couldn't I have thunk of that?

By another analogy, Fed's powers to inflate the economy remain physically constricted as there's no intact well casing left for them to inject heavy drilling debt into, no sufficient structure to channel it down, it would only cause severe lateral fissuring and spring countless leaks.

@El Gallinazo,Inventive, but how many potatoes does it take to power a single lightbulb? Also, seems to be a carrier and not a source, electrolytic potential is soon depleted, maybe better to eat them when fully charged, then power a bicycle generator.

The Fed is a limitless receptacle for rotten paper. All central banks share this property. When they coordinate their activities, the sky is the limit. And they will coordinate. Interest rates can't rise because central banks will buy the debt. It couldn't be any simpler. Currencies can't fall apart because central banks will coordinate the expansion of their balance sheets.

The system is watertight, and just look at the profit margins it's producing!

I'm now trying to dig through notes/files and I'll get back to you when I find that one. However the period indicated would be before electronic records, if memory serves correctly. I think I-C, which got going in the mid-80's, would have been before a lot of things were electronic, certainly before internet usage was prevalent. Will get back to you as the dig goes on.

Have a book by Al Martin I hadn't looked at much for a good five years. He was a Navy Officer who was associated with Jeb Bush's "accounting" - setting up sleeve corporations to mask $ transfers offshore.

Essentially I-C was mustered with a view to deploying a 50,000 man army in Nicaragua by means of sanctioned trafficking in cocaine and weapons. He alleges the "financing" involved some 5,000 offshore actors, who created an intricate and complex network of state-sponsored/organized/protected fraud upon savings & loans, commercial banks, securities firms, insurance firms, and illicit tax shelters. He writes that the essential concept was to refinance and replenish the coffers through a shadow govt operation involving contributions of some thirty-forty thousand top Republican people in what Oliver North termed "the Cause" and Secord "The Enterprise." Martin's part of the operation was titled "Gulf Coast Investment Group."

Of the 1,300 witnesses subpoenaed, deposed, and interrogated before the committees, 413 have since died under clouded circumstances (a great many before testimony).

Bush selected some individuals that served under Reagan for high-level posts in his presidential administration who were at least under scrutiny in the hearings (as noted, a lot of witnesses died in manners such as having a boat explode the day before their scheduled testimony). Those include:

• Elliott Abrams: under Bush, the Special Assistant to the President and Senior Director on the National Security Council for Near East and North African Affairs; in Iran Contra, pleaded guilty on two counts of unlawfully withholding information, pardoned. • Otto Reich: head of the Office of Public Diplomacy under Reagan. • John Negroponte: under Bush, the National Intelligence Director. • Admiral John Poindexter: under Bush, Director of the Information Awareness Office; in Iran Contra found guilty of multiple felony counts for conspiracy, obstruction of justice, lying to Congress, defrauding the government, and the alteration and destruction of evidence, convictions reversed. • Robert Gates: under Bush, confirmed on December 6, 2006 as the new Secretary of Defense to replace the resigning Donald Rumsfeld. Served as Director of Central Intelligence from 1991–1993 under George H.W. Bush. During Iran Contra he was Deputy Director of Central Intelligence. • Charles E. Allen: under Bush, appointed in August 2005 to be chief intelligence officer at the Department of Homeland Security. Allen's position at DHS was not subject to Senate confirmation. Prior to the DHS appointment, Allen had worked 47 years at the CIA. Director of Central Intelligence William Webster formally reprimanded Allen for failing to fully comply with the DCI's request for full cooperation in the agency's internal Iran-Contra scandal investigation. However coworkers of Allen pointed out that Webster reprimanded the one person in the CIA who had brought his suspicions of a funds diversion to Robert Gates. [Eclipse: The Last Days of the CIA, Mark Perry, 1992, p. 216.]

Ventriloquist said "Because the music stops playing before August, 2012."

Could you please enlighten me what happens before August 2012 that would cause the music to stop? I thought the The Mayan Calendar ended on December 21, 2012.

My pleasure.

There are a number of end-game strategies that are being played out here, before our very eyes.

They are too numerous to mention, but if you keep up with what is happening on this blog, as well as several others that are of equal worth, then you are clearly up to date on the state of the world economy.

If not, then read no further.

Suffice it to say, that there are so many, many tipping points out there at this particular moment in time, that anyone of them can simply topple the entire edifice into the maelstrom.

And, certainly, will do so. Soon. As in within the next 12 month. Then inexorable grind of unrequited greed is simply waiting to meet its denouement.

There are many, many, many of these Wile Coyote inflection points that are currently sitting suspended in air right now. You can read up on them on this blog or many others. They do not require enumeration here.

Now, if one of them should show up for remittance before it's appointed time, well, the game is over instantaneously.

However, with so many dishes suspended in the air by the Juggler of the moment (choose your poison, Ben Bernanke is the current goat) the chances of only one failing is minimal. The chances of several failing at the same time are enormous.

So, if you feel that the oligarchy has the ability to continue suspending disbelief in reality, ad infinitum, so be it. It merely shows that you have a faith-based belief in an elite who you assume have more integrity than you do.

Why don't people get that interfering more will cause more problems, not solve them? We should be doing less, not more.

As Einstein said: you can't solve a problem with the same level of thinking that caused it. But as a poster on TOD pointed out the other day, such wisdom is not worth bothering about... so think the majority of technophiles

The article on the Fed has been knocked off that website, but I have a copy of it. It will take some digging and perhaps luck. When I find it, I'll get back to you.

As to the frauds, they often had to do with chain hypothecations, moving money from one sleeve corporation to another using offshore locations such as Cayman, and eventually forcing some bank somewhere on earth to take the hit after extracting and hiding all the capital. Basically it amounts to insurance fraud because some bank is set up to write it off.

Or they might buy up leases on a bunch of nearly-dead oil wells, goof up the numbers to make them appear productive, go from bank to bank upping the level of hypothecation, and so on.

But I'm going to abstain from trying to recall the particulars of the one on the Fed until I lay hands on the article.

WASHINGTON, March 16— Lieut. Col. Oliver L. North, Rear Adm. John M. Poindexter and two other key participants in the Iran-contra affair were indicted today on charges of conspiracy to defraud the United States by illegally providing the Nicaraguan rebels with profits from the sale of American weapons to Iran.

The indictment was the most sweeping criminal action against former White House officials since the Watergate scandals, and presented to President Reagan the politically delicate issue of whether he should pardon his former aides before his term ends next January.

The long-awaited indictment, following a 14-month grand jury investigation, named Colonel North, who was a member of the National Security Council staff, and Admiral Poindexter, President Reagan's former national security adviser. It also named two middlemen in the arms transfer - Richard V. Secord, a retired Air Force major general, and Albert A. Hakim, an Iranian-American businessman. 'Exploiting for Own Purposes'

snip

According to the indictment the defendants, as part of what prosecutors described as the central conspiracy, defrauded the Government by ''deceitfully exploiting for their own purposes'' the Iran-contra initiative, ''rather than pursuing solely the specified governmental objectives of the initiative, including the release of Americans being held hostage in Lebanon.'' [ Excerpts from indictment, page D26. ] Today's indictment did not specify how much money may have been stolen. It said the arms sales to Iran generated about $30 million, of which the United States Government was paid $12 million.

The combination of giving up smoking and chatting to you folks has triggerd a major catharsis, 45 years overdue at that.

Thankyou all, collectively you've earned TAE a donation.

Whilst I shall do my best to avoid consuming bandwidth here, I have decided that action must be taken and I have a proposal, and this is going to be really weird. I will fully understand it if the moderators pull my comments and that will not affect my support for TAE in any way.

"Mah homeboyz tell me you gots lotsa da old yella stuff under dat pillow dere... lemme make it work for ya instead of just sittin' dere doin' nuthin'"

Oh I think I get it now, T. It's kinda like your version of the glenn beck (not to be confused with glennjeff) caricature of thuggery. He frequently attempts to capture its essence by audibly placing a pipe in his mouth, waffling nasally, leaning noticeably backwards -- or forwards -- and bringing his fingertips together where they can be drummed if necessary.

I realize it's an unfair comparison seeing as how you only have the written word available to you. Moronic as it is, with regard to cultural relevance, I still think that mr. beck's effort is more apropos.

Don't get me wrong: Gangsta was the golden age of rap. And it's good to see ebonics here.